(This is the fifth post in a series of blogs discussing the short sale process and tips for navigating it. The previous posts can all be found here)
We’ve finally come to the decision stage of our series on short sales. At this point in our journey we have looked at everything from preparation of your team before you enter into default, all the way up to submitting your short sale package and how to prepare for possible actions by the negotiator before approval or rejection. Now we will look at what to do in in the case of rejection of your short sale, and in the final post look at the acceptance of your short sale.
First, what happens if you have gone through all the work to get to this point and your lender still rejects your short sale? This is always a possibility and with the way the market is trending right now it has become more and more likely. If this happens to you the first thing you must focus on is remaining calm. Hearing that your lender has rejected your short sale can cause a wave of emotions to rise up including anger, frustration, and dread of a possible foreclosure. However, it is important to stay composed and continue to work with the lender.
Once you have composed yourself, you are going to need to find out why the negotiator has rejected your short sale. You and/or your agent need to speak with the negotiator and have them explain why they rejected your short sale offer. There are a wide variety of reasons that a negotiator may reject a short sale:
- Most lenders require you to be in default on your mortgage to qualify for a short sale. If you have tried to get short sale approval without going into default then your lender may reject your application.
- The negotiator, after looking at your income and asset information, may decide that you have too many assets and too few liabilities to qualify for a short sale. Lenders are only going to approve short sales for those borrowers who demonstrate clear financial hardship. If they see large liquid cash reserves or a lack of other liabilities the negotiator may decide that you have the money to pay your mortgage but are simply refusing to.
- The lender may feel that the buyer’s offer is too low to accept.
- The lender may see a better financial opportunity to foreclose on the property and try to recover value at an auction
Whatever the reason it is not time to give up. First, it may be possible to let the current negotiator close your current file and then re-open the file with another negotiator. Different negotiators may have different opinions on the case and a change could gain you an approval. It may also be that the negotiator doesn’t have the authority to grant approval because of the lender’s internal policies and asking to be referred to a supervisor could help.
If neither of those solutions works then your answer may depend upon the reason for your rejection. If you have yet to enter into default, as is sometimes the case, then it may be that the lender requires a borrower to be in default before a short sale can be approved. Ask your negotiator if this is the case and if so, then not paying your mortgage may get you short sale approval. (Of course before considering such a step you should always consult with experts who can tell you the consequences of such actions) If your application was rejected because the negotiator doesn’t believe that you are suffering a financial hardship then try to find out exactly what aspect of your situation led them to that conclusion. Sometimes a new letter of hardship or a letter from your short sale agent explaining your predicament can sway the decision. If you do have some liquid assets then offering to make a seller’s contribution can also potentially change the decision. If the lender sees that you are willing to contribute and mitigate their loss to a certain degree they may approve the short sale. If your buyer’s offer was too low or the lender believes that they can get a better deal through a foreclosure auction then work with your buyer to try and get a better price, while also trying to convince the bank that they cannot find better value elsewhere. Getting another Broker’s Price Opinion, appraisal opinion, comparable property list and general market assessment may show the lender that there isn’t extra value where they think there is. A savvy agent should be able to help you through this process. The point is that if you have been rejected then you should keep working for approval until every avenue has been exhausted. Usually you will be able to find one option that will reverse a decision from the lender and gain an approval. Next time we will discuss what to do once that approval has been gained.