When you are “underwater” in your home and you owe the bank more than the house is worth, you may decide to sell in a short sale. With a short sale, the bank agrees to take the loss and accept less than you owe because it will be less expensive than a costly foreclosure procedure. But remember that just because you are ready to sell and you have a buyer for your house, it doesn’t mean that the bank will go along with your short sale. You can list your house as a short sale and attract a buyer, but in the end it is the bank that decides whether to go through with the short sale transaction, not you, the seller.
Working with an Agent
There are some things you can do to make it more likely that the bank will issue an approval letter. Working with an experienced short sale agent can help you avoid pitfalls when you list your house as a short sale and give you the best chance at having the bank accept your short sale offer. A short sale agent will check to see if the bank still owns the loan, find out the best person to speak to in the loan mitigation department and call frequently to find out the status of the short sale request.
4 Important Reasons Why the Bank Will Reject your Short Sale
The Short Sale Offer is Priced Too Low
Pricing a short sale is a balancing act. Your buyer must be satisfied that s/he is getting a good price and the buyer’s lender must be willing to finance the deal at that price. But most important of all, your bank must feel that the price is justified. Your bank is likely to order an appraisal of your home and a BPO (Broker’s Price Opinion).
To justify the price, it is important to provide the bank with a CMA (Comparative Market Analysis) that shows the fair market value of your home. The CMA will also show whether prices in the neighborhood are trending up or trending down. If you can show that prices have dropped and are headed even lower, the bank will be able to see that foreclosing and selling the property in the future may produce an even lower return and make it more likely they will agree to a short sale.
Your Buyer Doesn’t Qualify for a Mortgage
These days, banks perform an in-depth scrutiny of buyers who apply for a mortgage. The prospective buyer of your short sale home may have the finances to buy your home, but money in the bank and a good job is not the whole story. In order to obtain a mortgage, your buyer’s lender will look into the buyer’s credit history, the ratio of their debt to income, how long they have been at their job and other factors that go into making a decision.
Including a mortgage pre-approval letter from your buyer’s lender can go a long way to convince your bank that your short sale buyer is qualified. A pre-approval letter is issued after the buyer completes an application for a mortgage and their bank performs an extensive financial background check. Do not confuse a pre-approval letter with a pre-qualification letter. A pre-qualification letter is based on general overall financial information your buyer provides concerning their income, debt and assets. A pre-approval letter is based on more thorough information.
You Do Not Qualify as a Seller
When you ask for a short sale, you are asking the bank to forgive your debt. If you owe the bank $250,000 but you can only pay back $200,000 after the short sale of your house, you are in effect asking the bank to forgive $50,000. The bank may be willing to agree to the short sale if you can’t come up with the money to pay the difference. However, if you have taxable assets, the bank may be unwilling to accept the short sale if you refuse to work out a repayment plan. Taxable assets can include money in the bank, other real estate holdings, securities and/or pension plans.
The Bank Has Incomplete Information
When you ask the bank for a short sale, you provide the bank with a short sale package. The short sale package will include information about your income, your tax returns, your bank accounts and much more. You will also provide the bank with a hardship letter explaining how you got into financial difficulty and any steps you have taken to resolve the situation. It is a good idea to label all information you send to the bank clearly so there is no confusion.
Keep in mind that the bank may ask you for the same documentation over and over again. Sometimes the repeated request is because regulations have changed since you last sent the information, or the request can simply mean that the bank lost the documents. You have no option but to supply the information yet again. The bank will not approve your short sale unless it has every single piece of documentation.
Help with your Short Sale
If you live on Long Island or in the five boroughs of New York City, Realty Warehouse can help you convince the bank to accept a short sale in New York City, if you decide if a short sale is a good option to avoid foreclosure. Our resources and contacts can present your short sale offer to the right person at the bank and guide you through the entire short sale process. We help homeowners weigh their options, find alternatives to foreclosure and achieve the best possible outcome.
Realty Warehouse enjoys an A+ accreditation rating from the respected Better Business Bureau. Count on us to learn about your specific situation, offer the advice you need and provide effective solutions in a stressful situation.
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This blog is for informational purposes only, subject to change.