A short sale is a great way for homeowners to sell their property if they’re lagging on loan payments. With a short sale, a property is sold for a sum less than what is still owed on the mortgage. This is an excellent way to avoid foreclosure. However, there are risks along the way.
Banks will often reject a short sale in Charlotte, NC for several common reasons. Typical reasons include: if you’re missing documents regarding the property, if your buyer doesn’t qualify for the short sale, or if you as the owner don’t qualify. These are the most common reasons for the rejection of a short sale.
While a short sale might sound like a good option, there are situations where a bank will reject a short sale offer, which you should note. It’s a process that comes close to being complicated, but if successful, it helps you solve many financial problems. Continue reading to learn more about why banks reject short sale offers in Charlotte, NC.
Do Banks Approve a Short Sale?
A short sale is generally left unapproved unless the bank receives an offer from a potential buyer. The most common way for short sale approval is for a buyer to submit their offer. After that, the bank’s short sale approval letter is to be sent, depending on the verdict.
Additionally, if a seller can prove to the bank that a short sale will be more beneficial for both sides than a foreclosure, the bank will likely approve it. Here is how the procedure generally transpires:
1. The seller will list the property as a short sale.
2. Any documents regarding the property and the short sale will be communicated. It shall be between the lender or the bank and the seller and/or their agent.
3. A buyer will become interested and submit an offer. The verdict will depend on the lender’s approval of it.
4. The seller will sign the offer of the potential buyer.
5. The agent or the seller will send the offer, the documents, and other necessities to the lender or the bank.
6. There will be a waiting period for the approval letter. At minimum, this will take a few weeks, but it can take months.
7. If the lender approves the short sale, a short sale approval letter will be sent to the seller or their agent.
8. Once received, it will be relayed to the buyer. Unless the buyer has canceled their offer during that waiting period, the sale will be completed.
Once the approval letter from the lender arrives, then comes the approved sale price and the buyer’s funding. These are the most significant components that a short sale depends on. The sale can only move forward with the approval letter and when the buyer hasn’t backed out.
There are times where the buyer walks away or gives up waiting on the short sale after it has been approved. In this case, they still might be interested in buying the home. However, other reasons might be stopping them from buying it.
These are some of the reasons for a buyer’s cancellation:
- The home needs repairs that their lender won’t pay for.
- The buyer does not qualify for the loan.
- The buyer might not satisfy the funding conditions provided by the bank or the lender.
Final terms may not be settled if additional factors affect the sale. Regardless of whatever agreement happens between the seller and buyer, the final approval still depends on the bank. The final say always depends on the bank.
In some cases, after the old buyer backs out, a new one may come along and make an offer. The terms of the new buyer would have to match what is stated by the lender or bank in the approval letter. This is why it is often better for the approval letter to use general statements. Otherwise, a new letter will have to be requested if the previous one specifies the buyer’s name who backed out.
Why Do Banks Prefer Foreclosure to Short Sale?
Short sales mean that a property is sold less than what it or the mortgage debt is worth, which means that a bank loses money on a short sale rather than recouping its losses with a foreclosure. However, short sales in Charlotte, NC are very viable alternatives to foreclosure in some situations.
A bank will most likely approve a short sale if the selling price or the offer is near the original market value of the property. Banks are businesses, which means they seek to earn profit as well. If a foreclosure costs them more to process than a short sale, the latter will be approved.
Banks will take possession of the house in foreclosures and resell it at a mortgage auction to whoever bids the highest. If the bank feels the home won’t receive a bid close to the market value, then the short sale will be chosen.
After a foreclosure, the bank may wish to sell the home. However, it is highly unlikely that the property will receive an offer higher than the initial short sale offer. A foreclosure will become a more profitable option if the bank deems that the real estate market will likely appreciate.
Why Would a Bank Deny a Short Sale?
When executing a short sale, the primary step is to convince the bank or lender to agree to release a mortgage lien in exchange for receiving proceeds from the sale. Depending on the conditions, many lenders will not view a short sale as a viable option.
Here are 7 reasons that banks may deny a short sale offer:
Reason #1: The Short Sale Offer Price is Too Low
The bank or the lenders will have to request an appraisal; at times, more than one. There is an established price before a short sale approval is placed. Sometimes, banks might request broker price opinions in place of the completion of the appraisal.
A buyer will place and name their offer. Then, the listing agent will submit the short sale offer, which should also include a comparative market analysis justifying the offer’s pricing. If the lender sees that they make more money through foreclosures, the offer will most likely be rejected.
A lowball offer will highly likely receive a rejection from the lenders. The rejection might even come a few weeks or months after the offer. It is a very practical move for banks to reject low-priced offers, especially if they don’t come close to the property’s market value.
Reason #2: Missing or Incorrect Documents
A short sale package must be provided to the bank or lender when seeking a short sale approval. This package includes several documents and paperwork revolving around you and the property. Usually, this consists of a statement of income, tax returns, and a letter regarding the financial state you’re in and how it came to that point.
The letter included needs to explain the financial difficulty you’re experiencing, which involves the steps you’ve taken so far to resolve it, before resorting to a short sale. It is essential that all information you provide be labeled clearly to avoid any confusion.
In some scenarios, lenders will lose some of the documents in these packages. It doesn’t matter how many times or when the package was provided. The chance of misplacement might still occur. In that case, resending will need to be done, probably lengthening the process.
The sale will not be granted if any documentation is wrong, incomplete, or not up to date. An excellent solution would be providing digital copies of the documents, though the same issues could still arise.
Reason #3: The Seller Doesn’t Qualify for the Short Sale
Asking for a short sale from a bank means that you ask them to forgive the debt that you’re in. In general terms, this sounds unlikely to get approved. However, it isn’t impossible and is reasonably achievable with complete requirements and satisfying the criteria provided by the lender.
Banks might be willing to agree to short sales if it is clear the borrower can’t pay the difference remaining on the mortgage. If the property you are thinking of putting up for short sale is close to foreclosure, the lenders may reject the short sale. This is especially applicable if the bank has invested in the foreclosure, holding the property and selling it themselves.
As a seller, you have to be wary of everything and make sure that you work with the lenders to avoid proceeding to foreclosure. Ensure that all communication is open and ongoing. Establishing a good relationship with the lender provides higher chances of the short sale approval.
Reason #4: The Buyer Doesn’t Qualify for the Short Sale
A buyer wants to buy the home and has the money to pay for the home in most cases. However, this does not guarantee immediate approval of the short sale or qualifying for it. Banks need to perform in-depth checks on buyers, including their mortgage status, credit history, and other criteria.
This is evidence that the buyers are qualified to purchase the house. Financial capability is crucial. For a buyer to gain credibility, they must submit a loan pre-approval letter along with their offer on the short sale.
Reason #5: The Lender Has Sold the Loan
There are times when the agent or the seller might not be aware that the lender no longer holds the loan’s mortgage. Sometimes, this event occurs weeks after or during the negotiations on the short sale.
Once the bank has sold the mortgage to another lender, the short sale approval no longer depends on them. This is now authorized to the new lender, as the asset has already been released. Even if the agent or seller continuously receives statements from the original bank, they might no longer be servicing the loan.
This is why regular contact and communication between sellers and lenders are essential. Even the simplest miscommunication can lead to lengthening the process or canceling it as a whole, eventually leading to foreclosure.
Reason #6: The Buyer Walks Away From the Home
There are times that buyers get impatient. No short sale is completed in just a few days, as the process is long and requires a lot of patience and waiting. In the process, a buyer often gets impatient, loses their funding, or walks away from the offer due to other issues.
Communication between the buyer and the seller is also important, so a buyer must also be qualified for the short sale purchase before finalizing the offer. Despite doing the most to move forward with the sale, mishaps can still happen.
Reason #7: Multiple Lien Holders Refusing to Settle on Terms
A title with lien holders must reach a mutually beneficial agreement to succeed in a sale, which is more than likely to succeed with just a few lien holders. However, the more lien holders you have, the less likely an agreement might be reached.
If you fall behind on your mortgage loan and you know you can’t catch up, then attempting to make a short sale is a good option. That being said, it needs to be done sooner than later. If you prolong it, there’s a high chance that a foreclosure will be at risk, especially if you have several lien holders. It’s an excellent choice to act before lenders do.
These are the most common reasons why short sales can be rejected. In other instances, a short sale might not be possible at all. The key to success in a short sale is through early action, the right help from an expert, and patience to go through with it completely.
What Happens When A Short Sale is Denied?
If a short sale is initially unapproved or denied, it doesn’t necessarily mean it ends there. However, it is good to check on the terms agreed with on the initial buyer to know if you’re good to contract with someone else for the short sale.
Final Thoughts
The best plan would be to make sure all factors involved in the short sale process are settled with these mentioned reasons. Even if it may be a tiring process, in the end, it will make a huge difference.
A lot of banks have criteria that have to be satisfied, so certain applications, documentation, requirements should be completed within a timeframe provided by them to be prepared as soon as you can. Remember that a short sale gives you more control over what happens over the property, rather than an eventual foreclosure which will be a disadvantage for you.
If you opt for a short sale, you have more opportunities to succeed. The short sale process works similarly to a traditional home sale. In any case, it’s best to be careful and wary of everything and everyone involved in the process.
If you’re looking for help in short sales in Charlotte, NC, Nancy Braun provides the best guidance and help you can ask for. With several years in the industry and expert experience, there’s no one else more qualified for the job.
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