February 16th, 2010 12:01 PM by Dave Gubler
Why Banks Reject Short Sales
Your bank will demand a great deal of documentation before approving a short sale. Contrary to popular belief, though, a seller does not need to be in foreclosure or have fallen behind on their mortgage payments for a short sale to be successful. Here are some common reasons that banks turn down short sale requests:
Banks will order a BPO (Broker's Price Opinion) that will be performed by a local agent or broker in order to establish the current fair market value of your home. This is generally done within a few weeks of us submitting the short sale offer to the lender. They may order several BPOs in order to get a solid idea of the fair market value. Sometimes they will even order a full appraisal. A justification of value should be submitted by whoever is representing you on the short sale in the form of a CMA (Comparative Market Analysis), BPO, or AVM (Automated Valuation Model such as Freddie Mac Home Value Explorer). If the bank believes it can make more money by taking the property through foreclosure proceedings, the bank will reject the offer. IML Real Estate has a successful track record of substantiating our claims of market value and refuting the lender's assessment of value when it is inaccurate.
Ask any short sale specialist and you'll hear horror stories of how banks lose documentation. In some cases, it doesn't matter how many times the package is overnight mailed or faxed; the bank just seems to misplace it. Worse, an important document might not be in the file, and without all required documents the sale will not be granted. You must select a short sale agent/negotiator that is relentless in supplying and verifying receipt of documentation. IML Real Estate understands the reality of how bank representatives handle and receive documentation. We leave no stone un-turned and are constantly vigilant about verifying that documentation requirements are met and exceeded.
If the seller is asking for debt forgiveness, the bank will want to see a hardship letter from the seller that explains why the seller cannot afford to pay back the shortfall difference. Sellers who have large amount of liquid assets are at a disadvantage if the sellers are unwilling to work out a repayment plan with the bank. Your agent/negotiator must be able to concisely and effectively demonstrate your hardship. Many inexperienced agents do not have effective means and systems to adequately establish your hardship with the bank.
The desire to buy a home and the financial means to afford a mortgage payment do not mean a buyer qualifies to buy a home. A buyer's lender will examine credit history, length of time on the job, debt ratios, and a host of other criteria to determine a borrower's qualifications. Loan standards have been elevated quite a bit since the housing crisis began. To gain credibility with the seller's bank, buyers need to submit a loan pre-qualification letter and proof of funds along with the offer. We are effective at evaluating the strength of the potential buyer because we require them to qualify with our financing options in addition to any financing they have already secured. In this manner, we protect you from wasting time with non-qualified buyers. Time is precious in a short sale transaction and we cannot afford to sacrifice it for a buyer that is unlikely to qualify. It can mean the difference between successfully selling your home and foreclosure.
Sometimes, the bank won't realize it no longer holds the mortgage on the property until many months have passed during short sale process. If the bank has sold the mortgage to another lender, the bank has no authority to approve a short sale because it has released the asset. Although the seller may continue to receive statements from the bank, the bank might be servicing the loan but not own it. Although the short sale or loss mitigation department may not be aware of the transfer to another lender... we will be. We maintain frequent follow-up with servicing to ascertain that the loan remains with the current lender.
Dave Gubler: IML Real Estate
Successfully Negotiated 100+ Short Sales.
Experience With All Major & Minor Servicers.
List Your Home With An Experienced Agent: IML Real Estate
www.IMLRealEstate.com for more information.