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How do Short Sales Work and Why Banks Might Reject Them

The public thinks if you are in lending, you are up on every facet of lending. It can be embarrassing if you are not.

Many business or consumer lenders are not up on the details of Short Sales, where a mortgage borrower attempts to get the mortgage holder to accept less than the loan amount and forgive the rest.

I was in a restaurant Friday and got in a conversation with the waitress, Margory. When she found out I consult with banks on loan quality she told me her sad story. Within seconds her eyes had teared up. It is clear she is suffering and does not understand why the bank won’t accept the short sale she has lined up.

I commiserated and wished her well. Then decided I wanted to know a bit more about short sales.

About.Com: Homebuying/Selling has a good explanation of why a bank might reject a short sale. It also has links to other articles that cover all aspects of the short sale: definitions, tax consequences, impact on credit scores…the works.

Here is the short list of why a bank rejects a short sale:

  1. Offer price is too low
  2. Package is incomplete
  3. The seller does not qualify
  4. The buyer does not qualify
  5. The bank sold the loan

What resource do you use to get info on an aspect of banking or business that you need to know about?

Silly question…besides the site-wide search function on, of course.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.