Every lender has different criteria for evaluating a short sale offer. There are, however, common reasons why banks will reject an offer. You can increase the chances of your short sale offer being accepted if you avoid these deal breakers.
Short Sale Deal Breaker #1: The short sale package is incomplete.
Think of a short sale as an “unloan”. Rather than trying to get a loan, you’re trying to get out of a loan. In both cases, the bank needs a snapshot of your financial situation to determine whether they will approve the transaction.
That means submitting all the required documents, which commonly include pay stubs, banks statements, tax returns, financial analysis forms and a hardship letter. When applying for a loan, if any of the necessary pieces are missing, the loan won’t be approved. The same applies to a short sale.
Short Sale Deal Breaker #2: The short sale does not meet investor guidelines.
Many home loans are owned by large investors, who must approve the short sale before the transaction can move forward. Those investors have their own criteria for approval. Here are a few policies that have resulted in an investor rejecting a short sale:
- The homeowner was current on their payments.
- A foreclosure sale date had already been set and the investor was unwilling to postpone it.
- The homeowner had too much money in their bank account.
- The homeowner was 12 months delinquent on their loan and the investor would not postpone foreclosure proceedings and not allow a short sale.
These criteria vary widely from investor to investor, so the best course of action is to ask the question: What are the investor guidelines for approving this short sale? That information will allow you to set expectations for your client and save both you and them valuable time.
Short Sale Deal Breaker #3: The offer is too low.
Setting a price for a short sale is the delicate art of balancing what a buyer will pay and what the lender will approve. Banks receive a short sale offer in a vacuum. With thousands of distressed properties from across the country in their portfolio, the lender has no idea what the market value of an individual home is. The bank will commonly hire an appraiser or BPO broker to set a value after you submit an offer. If you have set the price too low, the lender will not approve the offer. If you think the value the bank set is unreasonable, you can go through the process of disputing the lender valuation.
If you are working on a short sale and have any additional questions, I’d be happy to provide you with advice free of charge. My name is Richard Eastern, and I’m a Windermere real estate broker and a partner in Washington Property Solutions, a short sale solution provider. Our goal is to help brokers like you provide the best possible service to their clients in the short sale process. If I can be of any help, please give me a call at (206) 612-5541.