In what situation is the margin of safety going to be negative?

Look at your equation for it:

Actual sales (or budgeted sales) - break even sales.

Now what would make that negative?

If sales fall below break even then margin of safety would be negative?

Yup. Also known as a loss. :-)

This concept is not about profit or loss! Profit or loss is not calculated by deducting one type of sales from another type of sales.