What are the Main Reasons Why Short Sales are not Approved?
SFR® = The Short Sales and Foreclosure Resource (SFR) certification is for REALTORS® who possess the specific skills that will allow them to help buyers and sellers of distressed properties.
In economic downturns, short sales fail primarily because the servicers (the person who you make your monthly mortgage payment too) are not prepared to deal with them. The process of reviewing a borrower/seller financial hardship takes a long time and servicers are not ready to promptly respond when an overwhelming number of loans start to default. The servicer has very little desire to do a job in which no one wins. There is never a guarantee that the servicer will approve your short sale so making sure you follow all the requirements requested are key to your short sale approval request. Time is critical as the foreclosure clock is ticking as days go by. To find a SFR certified realtor, this is me, who has had the training, experience and certifications to deal with short sales, “bank owned” or "REO.” is extremely important. Real estate short sales and other properties in distress required a lot more paperwork, time and preparedness from you and your real estate agent. If you are presenting an offer for a distressed property or listing your property on the market as a short sale, creating a contract that has a reasonable chance of closing and to monitor the transaction throughout the approval process is key to a short sale transaction success. Short sales are failing because real estate agents and clients are not aware of the lengthier process and forms required. As an example, many loan servicers required document submission to be manually signed (no electronic signatures) and that documents be submitted through a platform such as Equator.com and PasREO.com. The short sale process varies for GSE’s(Fannie Mae, Freddie Mac), FHA, VA and other Non-GSE.
How to do a Short Sale? What to Consider?
Short Sale Agents, Buyers and Sellers Best Practice Considerations
Remember that actions of the agents, sellers or buyers directly affect the approval process of a short sale. This process must be very well coordinated to make sure the short sale goes smoothly. My best recommendation as an certified SFR realtor is to be prepared and be diligent in the short sale requirements:
Does the seller have a valid financial hardship? - it is required or the short sale application will be denied
Is the seller current on the mortgage payments? If so, is there an imminent financial default in the very near future? - this is a requirement for the short sale approval
Does the buyer have realistic expectations of the time frame for approval and closing? Is the buyer flexible on the closing date?
Are there any other liens on the property that could affect the short sale approval? Example: HOA fees, IRS tax liens, Mechanic's liens, Real Estate liens, Home Equity Line of Credit liens, 2nd mortgage or other liens
Is the offer fair and reasonable according to other compatible properties market value and the short sale property condition? - Remember that the loan servicer requests at least 2-3 independent market value reports (appraisals, Broker Price Opinion (BPO) or Comparative Market Analysis (CMA)) before reviewing any offers. Your best bet as a seller/buyer is to ask for a CMA report from a certified SFR realtor like me to make sure you have a good chance for approval and to know what to expect. You, as the seller/buyer, should submit certified professional repair quotes with any offers or price recommendation so loan servicer can have a better idea on a fair market value
Does the seller\buyer already have an attorney?
Have you, seller\buyer, talked to your accountant about financial implications in a short sale?
Who is on the property’s title?
Is there a divorce decree involving the short sale property?
Has the seller spoken with anyone at the lender/lien holder's office?
Is there a PMI (private mortgage insurance)? - this affects the short sale process as approval for insurance payment to loan servicer comes into play
Is the buyer financially qualified?
Is the seller's property owner occupied, a rental unit or is it vacant? Is the short sale property a primary residence, a second home or an investment property?
Has the buyer done her or his due diligence?
Does the short sale contract have a reasonable chance of closing?
Has the buyer provided tender earnest money? - this should be in the form of certified bank checks to prevent any delays. Personal checks take longer to clear and transactions can be cancelled if the checks are returned unpaid
Has the buyer completed inspections?
Has the buyer started the mortgage application? - delaying this process can reduce your chances of approval
Has all required documentation been properly submitted?
Examples of Possible Problems in a Short Sale
Junior Lien Holder Says "No"
Suggested Solution 1: The listing agent and the seller need to assess a plan for repayment of debt to the junior lien holders prior to acceptance of an offer. This type of negotiations could be major battlefields. If you seller knows the holder of the junior lien and the buyer can establish what they are willing to accept to release the lien, then resolving this prior to seller acceptance of the contract is best option you have. Short sales will fail if these junior liens are not resolved. Suggested Solution 2: Pay the lien. Remember the payment of what the junior lien holder wants to release the lien does not always have to come from the primary lien holder. Once you have determined(negotiated) how much the lien holder wants, the payment can be made by the seller (if funds are available) or the buyer, or both. Short sales will fail if these junior liens are not resolved.
Short-Sale Package Not Submitted Properly
Suggested Solution 1: It may seem simple to submit the required paperwork but this is one of the most common reasons why short sales fail. If the short sale package is incomplete, loan servicers may not call immediately and may not notify promptly of what is missing. The package will be set aside until they have the time to start making such calls. Some loan servicers may attempt to reach out to you on the missing documents, but this alone slows down your short sale approval process. Many loan servicers will simply terminate the file without informing you as you have not complied with their request. The simple solution is to be thorough, submit a complete short-sale package as required by the servicer and always follow up.
Short Sale Purchase Offer Too Low
Suggested Solution 1:
Every loan servicer follows their own formula to determine the price they will accept on a short sale. There are simple-and-fast guidelines on what the servicer can and will approve. For this reason, the buyer's and seller’s representatives should complete a thorough CMA prior to writing and accepting an offer.
Making an acceptable offer is key. Have sellers and buyers negotiate the best contract they can prior to acceptance and submission to the loan servicer. Submitting a thorough CMA and quotes from licensed professionals on any repairs needed can help all parties involved understand how the value is affected. You might also ask the negotiator how the BPOs compared to your CMA and see if there is a problem that can be addressed.