Short Sales Fail Due to Unreasonable Second Lenders
Short sales compares herself to a ping pong ball, the way she is often bounced between first and second lenders.
- First lender might not agree to meet the second lender’s demand.
- A third lender might refuse to play ball at all.
- Some second lenders push sellers to commit short sale mortgage fraud, which could could happen if the lender demands a payment outside of the HUD-1.
Short Sales Fail Because the Home is Vacant
Many servicing guidelines require that the home shall be occupied during the Short Sale process. They may go so far as to insist that the seller move back into the Short Sale Home for Sale, and many sellers cannot afford to do so. You will have a better chance of closing your short sale if the seller lives in the property.
Short Sales Fail Due to Demands for Seller Contributions
Banks demand seller contributions all the time, even if the seller has no money and no assets. The bank might insist that the seller kick in cash or sign an interest-free, long-term promissory note.
Short Sales Fail Because of Deficiency Verbiage
Many states allow deficiency judgments when lenders take a short payoff, regardless of whether the financing is purchase money or a hard money loan. Not every lender will agree to remove deficiency verbiage from a short sale approval letter. Even in situations that are exempt from deficiencies, doing a short sale might change or alter the sellers’ exemption.
Short Sales Fail Because PSAs Prefer Foreclosure
It’s possible that the servicing guidelines might not contain any provisions for a short sale. In that event, the short sale will not be granted, even though it may have appeared all along that the bank would approve the short sale. In addition, some PSAs make more money if the home goes to foreclosure due to incentives in the guidelines.
Short Sales Fail Due to Tax Liens, UCC Filings and Judgments
A quick check of the public records would disclose liens filed against the home or the seller, but few buyers order a title check until they get short sale approval. Some types of liens will follow the seller even after a foreclosure and will require payment before the short sale can close. Generally, banks will not pay those liens.
Short Sales Fail Because Bank Offers Loan Modification
I’ve had sellers call me up in the middle of a short sale to say the bank, which had previously refused to offer them a loan modification, now wants to give the sellers an incredible repayment plan that the sellers can afford to pay.
Short Sales Fail Because Home is Vandalized
Vacant homes in Short Sale can be sitting ducks for thieves. Water pipes can break and flood the home. Lightning can strike it and burn the home to the ground. But more often than not, thieves break in, steal the appliances and rip out copper. Banks often will not pay for repairs.
Short Sales Fail Because Sellers Get a Job
Some short sales can take so long to get approved that eventually the seller will find a job. Once employed and earning a good income, the seller may no longer qualify for the short sale.
Short Sales Fail Because Not Every Fee is Approved for Payment
The buyer might need a credit toward closing costs and the bank might refuse to pay it. Buyer’s closing costs can amount to 3% of the sales price, almost as much as the minimum down payment for an FHA loan. If the homeowner’s association dues are in arrears, a bank might refuse to pay those fees, among other charges.