A loan application submitted by applicant A was approved. Right before loan closing the co-owner of the property securing the loan decided not to sign the mortgage. The bank could then not make the loan. Would this be denied for lack of collateral, or considered approved not accepted?

Is it really any different than if the loan had gone to settlement and the co-owner exercised her right of rescission?

Why did they decide not to sign the mortgage?

Sounds like approved, but not accepted to me.

Not really sure why co-owner wouldn't sign the mortgage - probably marital problems.

I'm back and forth over whether this would be approved not accepted because it was approved at one time - - or if it should be denied for lack/value of collateral. Once the co-owner would not sign there was no collateral, so LTV requirements were not met which is a creditworthiness issue.

Approved but not accepted. You approved the loan. Failure to follow through with the requirements of getting the loan, i.e. signing the documents, does not change that fact. Your borrower was good to go. You just couldn't perfect the security without the other owner's signature.

Would you follow the same line of reasoning if a seller backed out of the deal at the last minute?

Yes