Reasons of Short Sale Rejection in California:
Foreclosure is a costly solution and short sale is a better option to avoid foreclosure and legal complications. Short sale laws are normally similar in all the states, but procedures may be little bit different in many states. Short sale in California is the same to the other regions of the United States. In the short sale process owner sells home lesser than the mortgage amount owned on the property.
California law signed in July 2012 amended the Code of Civil Procedure Section 580(e) according to which lenders cannot pursue for the difference between the mortgage amount and sale price of the mortgage home. Waiver of deficiency judgment in California makes short sale more attractive for sellers. A short sale is a time taking process that often takes more than three months to complete the process. The major hurdle in the process of short sale is the approval of short sale from lender that is not always an easy task to do. Lenders have right to reject the short sale for any reason and may not cooperate with borrower.
Why Lenders Reject Short Sales?
Short sale process is initiated with the mutual consent of lender and borrower. The lenders are fully authorized to reject the short sale and not to participate in the short sale process. There are a number of reasons why lenders reject short sales. Some of the top reasons are given here:
The short sale is similar to the ordinary sale of home. There is only one difference between the short sale and normal sale of home that in short sale process lender decides whether to accept or reject the offer made by the buyer. The lender is supposed to qualify for a mortgage even if buyer accepts the short sale proposal. The seller must get the lender’s authorization to sell the home as a short sale before a buyer gets the chance to make an offer. The seller cannot just walk away for existing mortgage and need to prove the financial disability to not pay the mortgage amount. The seller must provide a hardship letter stating that why he/she is not able to pay the back the mortgage amount. The hardship letter should have seller’s profit and loss statement, monthly budget and evidence of having less or no assets.
The housing market runs in multiple cycles and may have upswing and downswing. If the lender thinks that the market is on upswing he may not accept short sale and hope that the worth of home may be higher in near future. The lender will prefer to reject short sale and will opt for foreclosure. This will provide more time to housing prices to increase as predicted by home-owner.
Offer Price Too Low:
Before the offer is accepted by lender, the home will be appraised. The short sale offer may be rejected if the offered price is far below the fair market value of home. While the lender wants to save money by not proceeding with a costly foreclosure process, it may reject a short sale offer on which it will lose too much money.
Offer Price Too High:
The seller must provide and prove the financial hardship for a short sale to be accepted. If the current price of home is more than the owed amount of mortgage that means home owner can pay off the mortgage amount and still have left over. This is not a financial hardship and lender will reject the short sale.
The lenders will require all the necessary documents in order to initiate the process of short sale. Documents should not be missing or incomplete. They should have full required information and there should not be any ambiguity of information provided on the documents. It is to remember that a lender will require a perfect hardship letter from the seller and loan approval from the buyer to accept the sale of home. If there is anything missing, then lender may reject the short sale at any time.
The above given points are the top reasons that cause lender to reject short sale in California. If you are unable to meet your monthly loan installments and want to opt for short sale, you need to hire the services of short sale specialist in California. There are a number of short sale companies who provide short sale consultancy and can help you avoid foreclosure and legal complications that may arise going through the process of short sale.