5 Reasons Why Banks Reject Short Sales
No one knows if a short sale will happen until it officially goes through. Even listings labeled as short sale properties won't necessarily end up working out. A lot of things have to align properly for banks to approve a short sale, and a listing just means it's going through the short selling process, or soon will be.
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The Buyer or Seller Doesn't Qualify
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The lender determines whether or not to accept a buyer's offer when a short sale on a home is taking place. Even if an offer is accepted, the buyer still has to qualify for a loan on the home. An application must be approved for a new mortgage on the home for the short sale to be accepted. Remember that a short sale is considered forgiveness by the lender, and the lender wants evidence that it is required.
Missing or Incomplete Paperwork
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Both applicants and banks can lose paperwork, and that will stop a short sale temporarily or get it rejected altogether. The same is true of incomplete paperwork, or paperwork that arrives too late. Just remember that without every document in order, banks will often reject a short sale offer.
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The Offer is Too High
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Homeowners have to demonstrate financial hardship to qualify for debt forgiveness and short sales. If selling the home means paying more than the amount owed on the mortgage, the bank will not consider the owner to be in financial hardship. Ultimately, the bank won't allow the short sale.
The Offer is Too Low
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Generally, banks will accept 90 percent of the home's fair market value when agreeing to a short sale. Their goal is to offset their loss by keeping away from costly foreclosure proceedings, so if the bank will just force the seller into foreclosure if the offer is too low. Keep in mind that the bank will order a home appraisal, sometimes several, to be sure of the home's value.
The Market Doesn't Allow It
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Banks will reject a short sale request if they believe the housing market is turning around. If it is likely that the house will be worth more in the near future, the bank may not take the chance at selling the house below market value. The housing market follows a cycle of going down, then up. So, if the bank believes the market will go up during the foreclosure process, the short sale is likely to be denied.
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