First things first, you must find out who denied the short sale request: your mortgage servicer? the investor (owner of your loan)? the mortgage insurance company? or the second lien holder.
Second, you must find out why your short sale request was denied.
Here are a few reasons short sale requests could potentially get denied:
Hardship was unable to be determined: This may mean several things, but the bank is not going to tell you which:
- you are making your mortgage payment on time – this will change on November 1, 2012.
- you are spending in excess; if you did not spend this amount of money each month you would otherwise be able to afford your mortgage. Think about adding up what you spend each month outside of basic necessities – does this amount add up to a mortgage payment, a large portion of it… or more?
- you can eliminate unnecessary debt and thus pay the mortgage; gym memberships, high credit card payments, big car payments – things that can be eliminated, paid off, paid down, refinanced or sold.
- your situation has not changed since the qualification of the current loan you are in; you did not lose a job, you did not lose income in your job, you are not being transferred more than 50 miles away from your home, you have not had a death or serious illness of a primary wage earner, you are not getting a divorce, etc.
- you are not insolvent; insolvency is where your debts exceed your assets. While retirement in the form of an IRA or 401k cannot be considered for cash infusion in a short sale, it is considered in your financial picture – just as it was when you qualified for your mortgage.
- strategic default; this is when the bank/mortgage servicer (or investor, MI company, 2nd lien holder) has determined that you are strategically defaulting on your mortgage for short sale approval.
Unacceptable Sales Price; when the bank does their own appraisal of your home to determine fair market value – called the BPO, they have an amount that they expect to net on the sale of your home. If your contract price is too low, they may deny the short sale. Typically a bank will counter back with a price they are looking for in this situation unless it’s just way too low of an offer.
Foreclosure wins; while most banks are more willing to accept a short sale over foreclosure, sometimes foreclosing on a home will make more financial sense for the bank. Or, you may be too far into the foreclosure proceedings for the bank to be able to stop foreclosure and start the process a short sale request. Working closely with your bank and a professional qualified to facilitate/negotiate your short sale will tell you whether you have a shot once you are in foreclosure proceedings.
What can I do about the denial?
There are other unknown reasons that banks/mortgage servicers (investors, MI companies, 2nd lien holders) deny short sales, however, if you are in a true hardship situation, then you may be able to do a few things:
Appeal the process. This process must be discussed with your bank and the course of action will be determined.
Offer a cash infusion. In a nutshell, a cash infusion can be defined as a cash contribution toward the amount you are “short” in the sale of your home. This could potentially allow for the bank to net what it needs to approve your short sale or could show that you are taking fiscal responsibility in the situation even though you are financially distressed.
Negotiate to pay a portion of the deficiency balance. In a short sale, you will inevitably be left over with a deficiency balance – or the amount you still owe the bank for the mortgage. If you offer to pay a portion of this balance, let’s say 10% of it at an affordable interest rate over a 5 year period, then you could potentially get the bank to change their minds. This is not always an option and under the Mortgage Debt Forgiveness Act, you may not be responsible for the deficiency balance but could potentially be responsible for the “income” as the bank files this loss as a 1099C to you. **** this is not legal advice and it is strongly recommended that you seek counseling with a real estate attorney and a CPA to understand the implications of all financial decisions within a short sale transaction and those thereafter.
File a Complaint. If you feel as if your short sale was handled inappropriately or wrongfully denied, you might be able to file a complaint with the Consumer Financial Protection Bureau (CFPB).
Speak with an attorney who specializes in these situations.