Why Would a Bank Reject a Short Sale?
When you consider Toronto mortgage rates there are many reasons why a Canadian bank might reject a short sale. What is a short sale you ask? This designates an accepted amount of a home sale that a bank agrees on but which is less than the actual balance that is owed. Homeowners or sellers that are looking to get their mortgages off their hands and avoid foreclosure sometimes try to negotiate short sales. Needless to say it isn’t surprising why some banks might decide to reject such terms.
Some of the most common reasons why banks might decide to forgo such sales are as follows –
A Low Offer Price
As discussed a short sale involves paying a bank for a mortgage that is less than the original valued owed. A bank might typically request for a BPO (broker price agreement) instead of a full appraisal in such situations. Not only is the process shorter it is also a cheaper prospect for a bank. It involves taking figuring out the home’s value by keeping in mind the amount of the sales of three homes located in the same neighborhood.
However a bank will be less likely to accept a short sale offer for the sale if the offer price is lower than its BPO. In cases such as these, the bank might weight the foreclosure costs, the cost to hold and sell before making a decision.
The Seller does not Qualify
A bank might consider holding a home if the seller in question is currently facing foreclosure. The former might decide to sell the property itself in an open market if it has already invested in the foreclosure. If you happen to be a seller make sure that you keep communications open with your lender in order to avoid foreclosure proceedings. In order to prevent the bank from proceeding with the foreclosure make sure that you keep in touch to stay updated on pending offers.
The Bank Sells the Loan
A bank might not realize that it has lost the mortgage on a property during short sale negotiations until many months have passed. The bank will no longer have the authority to approve a sale since it has released the asset. The seller might be receiving bank statements but that does not mean that the bank owns the loan.
The Buyer does not Qualify
The bank will also ask for evidence that proves whether a buyer is qualified before accepting an offer. This means that the latter must prove that he is financially capable of purchasing the property. For instance a bank will usually ask for the following documentation-
- Proof of sufficient assets that will close transactions
- Credit report
- Preapproval letter with the sales price
Banks might not necessarily approve loans on homes that are listed as short sales. Even a short sale advert might not state that a bank has approved a sale. Therefore it is best that you do your research of Toronto mortgage rates the next time you look up short sales.