Why Would A Bank Not Accept A Short Sale Offer?

If you are facing foreclosure and want to stop, avoid, or prevent it, you may have been told to sell your house with a short sale. So you talk with your mortgage lender and your lender says "no", it will not accept a short sale. Then you wonder why?

To be honest, the real question is not "why would a bank not accept a short sale?" But the real question is "why would a bank accept a short sale in the first place?"

A short sale is where you have a buyer who will buy your house, but will not pay enough so that you can payoff your mortgage. So you ask your mortgage lender to accept less than it is owed so that you can sell your house. For example, you have a buyer for your house, but the buyer will only pay $150,000 and you owe $175,000 on your mortgage, so you ask your lender to accept $150,000 to satisfy your $175,000 debt. Why would your lender accept the loss?

Also, it often takes a while to find a buyer even if the sales price is less than the amount owed on the mortgage. Why would a bank agree to a short sale and hold off on filing foreclosure when it may take months or even a year to find a buyer and the bank losses money (interest) during that time?

The answer is that a bank may accept the loss and agree to a short sale because it believes that it will lose less money by accepting the short sale.

To improve your chances and encourage your lender to accept a short sale you need to:

1. Have a buyer already lined up when you ask your lender to agree to a short sale. This will eliminate concerns your lender may have about whether or not you can find a buyer.

2. Have a buyer that can pay cash (either from cash on hand or money that is readily available from an established source) and does not need to obtain a loan to buy your house. When a buyer has to obtain a loan, there is a question as to whether or not the loan will be approved. Your lender does not want to hope that your buyer can buy. Your lender wants to know that your buyer can buy your house.

3. Have a set price so that your mortgage lender will know how much that your proposed buyer is going to pay for your house.

Normally, before agreeing to a short sale, mortgage lenders want to see a written Buy-Sell Agreement setting forth all of the terms of the proposed sale and a preliminary HUD-1 Settlement Sheet showing that you will not receive any money from the sale.

The overall concept is to show your bank that you have a ready, willing, and able buyer and that your lender will lose less money by accepting a short sale than it would by going through the entire foreclosure process.

As a side note, when you write up a Buy-Sell Agreement, be sure to include a statement that the sale is contingent upon your bank accepting the short sale. Also, be sure to give yourself plenty of time (at least 90 days) to close the transaction because it normally takes a good bit of time to complete a short sale.

This article is general information. For specific advice, talk with a lawyer licensed in your state.

Stop! Don't blindly chase any option to stop foreclosure. See stop foreclosure options to learn what options you have in your situation. Remember, what works in one person's situation, may or may not work in your situation to stop, avoid, and prevent foreclosure. For more general information, see Stop Foreclosure - Five Options You Need To Know.

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