If you’re unable to cover your mortgage payments and you don’t expect your situation to improve, a short sale is one solution you might want to pursue. Having your request for a short sale denied can feel devastating, but you still have options.
How a Short Sale Works
If your lender agrees to a short sale, you will be able to sell your house for less than the balance you owe on your mortgage. Depending on where you live, you may or may not have to pay the difference. Sometimes a lender is willing to waive that difference, which is known as a deficiency.
A short sale is a way for you to get out of a house that you can no longer afford without going through foreclosure. That can be a win-win for you and the lender – you can avoid all the negative consequences associated with having a foreclosure on your credit report, and the lender can avoid the long and costly process of going through foreclosure proceedings, then maintaining or repairing your house and selling it.
Find out Why Your Request Was Denied
Lenders follow different guidelines regarding short sales. Generally speaking, a lender will only approve a short sale for a borrower who is facing a financial hardship, such as a divorce, job loss, bankruptcy, or illness in the family.
If you didn’t specify the type of hardship that you’re dealing with or didn’t adequately explain why you can no longer cover your mortgage payments, that may be why the lender denied your request for a short sale. Providing a more detailed explanation and submitting additional documentation that clearly shows your current income and expenses may be enough to get the lender to reverse its decision.
Your lender might have denied your request for a short sale because you’re up to date on your mortgage payments. Some lenders will only consider a short sale if a borrower is behind on loan payments.
Sometimes a lender denies a request for a short sale because the lender believes the offer that the homeowner got from a buyer is too low. It’s possible that the offer you received was well below your house’s market value, but it’s also possible that your lender made its decision based on an inaccurate understanding of your home’s value. If that’s the case, your real estate agent can dispute the issue with the lender.
Consider Other Options
If your short sale application was denied, you can try a loan modification. That will allow you to stay in your home and change the terms of your mortgage, such as your interest rate and/or loan term, and reduce your monthly payments to a level that you can afford.
Another possible solution is a deed in lieu of foreclosure. If you don’t want to remain in your home, you can offer to surrender it to the lender in exchange for having your outstanding debt canceled.
