Recently on our bankruptcy forum a user asked, “I have lost my job and my husband is disabled. No surprise, we cannot make our mortgage payments. We tried to work with bank to do a loan modification without success. Now we are considering a short sale, but I am concerned that the bank will give us the run around there as well. It seems like the bank would want us to sell the house to save them the hassle of a foreclosure. What are the reasons the bank might not approve a short sale?”
Overview of a short sale
A short sale is a negotiated sale which allows the seller (homeowner) to sell the property for less than the debts secured by the liens against the property. Because the bank or mortgage company will not receive the full value of the mortgage, however, they must agree to the short sale.
Unfortunately, banks commonly will refuse to agree upfront to a short sale, which means that the sale can be more complicated and take longer than a normal sale. In fact, it’s not uncommon for the listing agent, the seller, and the buyer’s agent to not know for sure whether a sale will be approved by the mortgage holder when a buyer makes an offer to purchase the home.
Now, it sounds like you know that you cannot keep your property, you doubt you can sell it for the full amount owed, and you have already talked to your lender about a loan modification. Given that information, a short sale could be perfect for you. So, let’s address the three most common reasons that a bank will not approve a short sale.
Reasons the bank might not approve the short sale
- Buyers offer to buy a home for much less than the appraised value of the home.
One of my clients was looking to buy a home a few months ago and wanted to buy a home which was for sale through a short sale. The listing agent finally admitted that it could be a waste of time because there had already been 40 offers made to purchase the home and the bank had refused everyone.
She did not mention the reasons, and the seller may not have been very motivated, but most likely it was because the buyers were offering prices which were far below the appraised value of the home.
If you want to have the bank approve the short sale, you will need to find buyers who are willing to pay close the true value of the home. Yes, everyone wants to find that perfect home for far less than it is worth, but the bank may be less inclined to sale a home if the buyer offers too little.
- The buyer must qualify to buy the home.
The second most common reason a bank will deny a short sale is that the buyer does not qualify to purchase the home.
- The seller does not qualify for the sale.
Finally, a bank will not agree to a short sale unless the buyer can prove that they cannot make their mortgage payments. If you have plenty of cash and assets to pay the mortgage the lender will see no reason to sell the house for a loss.
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