I often find agents mistaken in their beliefs why short sales are not approved, or do not otherwise close. While I certainly applaud successful short sale agents, there is widespread misunderstanding and misinformation about this topic.
As an attorney who has not only sold real estate (well, for a year and a half, that is), and has represented and dealt with servicing lenders and secondary market investors (SMI) over the last 20 years, I have a unique understanding of these entities and relationship with them. A number of those institutions have managers and executives who are friends of mine, and we have on numerous occasions discussed the issues causing short sales to not be approved.
So, here are the top reasons that a short sale does not close as I experience them with the agents who work with our firm and confirmed by my contacts in the mortgage lender/SMI industry.
6. Not submitting multiple offers. I'm sorry, but I must respectively disagree with those who hold contrary 
opinion. My contacts tell me that providing multiple offers have indeed helped them to see that the agent is doing all they can do to get the home sold. When there is a borderline case, the multiple offers can make the difference. However, the servicing lenders generally do not like them. There is also a side benefit: if the selected buyer walks, there is another purchase contract that can carry the deal to close. However, in some areas, multiple offers are not permitted. Some say they are not legal. Wrong! They are legal, however, both the listing and the purchase contracts must be drafted properly.
5. Not submitting a proposal. Many short sale instructors merely teach to send in a complete short sale package. It is true that you must have complete documentation, but it is important to draft a full proposal, as well. Organizing your request to approve a short sale has often made the difference between success and failure with the agents who work with our firm. The proposal should contain specific features and I outline them at length in both of our publications. My SMI contacts state that properly drafted proposals are given very careful consideration and they have approved our format.
4. Causing the proposal to be tanked. Many agents still think that the servicing lender is the one who approves the short sale and that they can actually negotiate with that lender's "negotiator". However, most loan notes are actually owned by the SMI and either they, or an MI insurance carrier if they have paid off a claim, approve or reject the short sale. The servicing contracts provide limited authority to servicers and it is very common for servicer employees to cause the proposal to be tanked if they can get away with it. Any excuse may trigger this behavior: incomplete or mistakes in drafting proposals, getting them angry, etc, can cause your proposal to be tanked.
3. Not communicating adequately with parties. Buyers are patient...to a point. Same with 
cooperating agents. We provide weekly updates to all parties, more often when things happen. Buyers must be part of the process and be motivated to hang in there when approval takes a long time.
2. Not meeting the definition of "hardship". Like a criminal case wherein each element of the criminal statute must be proved, in short sale cases the hardship letter and financial documents must prove each element necessary for a secondary market investor to render a finding of "hardship", and approve the short sale. The hardship metter must contain certain elements, without which, the case will be rejected.
1. The most important reason that a short sale is not approved is not meeting the net to lender minimum 
threshold percentage of the fair market value. In the past, secondary market investors utilized the short sale versus REO comparison analysis to approve or reject a short sale. However, almost all SMIs have changed over to the minimum threshold analysis. That analysis ignores the amount of the debt and focuses on proof of the current fair market value of the property. For different SMIs and even different products, there is a set minimum threshold percentage of the fair market value that must be received in order for the proposal to be approved. Many agents eroneously believe they are still using the old comparison analysis.
So, the bottom line is this: if a proposal meets the definition of hardship, that hardship is supported by the financial documents, you do nothing to cause the servicing lender to tank the proposal, and the offer meets the net to lender minimum threshold percentage of the fair market value, the short sale will be approved and if a qualified buyer remains, the transaction will close.
Best wishes,
Ken Lawson, JD
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