Short Sale Hardship–The Hard Part

Tired of making your payment? Maybe thinking it will take too long to recoup your investment and just think it would be easier to short sell? Well, sorry to spoil your plans, but a bank won’t think so highly of your strategy.

What does short sale hardship mean?

It is not enough to have a big 1st loan, a fantastic remodel (and therefore hefty 2nd mortgage), and own a home worth less in today’s market than the sum of the two loans.  Tired of making your payment?  Maybe thinking it will take too long to recoup your investment and just think it would be easier to short sell?  Well, sorry to spoil your plans, but a bank won’t think so highly of your strategy.

For a bank to approve a short sale, as the seller, you must prove hardship.  If you’re a commission salesperson and you’ve had a slow month, or if your bonus this year was less than last year, join the club.  This will not suffice.  Hardship needs to be major financial distress.  It needs to be over a sustained amount of time, for uncertain duration, and verifiable; meaning, the bank will ask you to back up your statements with lots of documentation.  Making stuff up won’t cut it, and will possibly put you at risk for fraud with legal and financial repercussions.

How will the bank decide if I qualify for short sale hardship?

Bank short sale departments (also called Loss Mitigation, Home Owner’s Assistance, Home Retention, etc. departments) look for the 3 M’s:  Money, Medical, and Marital hardship.  All three involve money–usually a lack of it or a great need for more–and a future need to conserve savings.  Here is a short list of possible short sale hardships that a bank will take seriously:

  • Loss of job
  • Closing of business
  • Personal or business bankruptcy
  • Prolonged loss of rental income
  • Death of spouse/income earner
  • Major health problem and expense
  • Divorce or separation
  • Military deployment resulting in loss of income.

This list is by no means exhaustive, but it will give you an idea of what a bank might consider a legitimate short sale hardship.

Next up:  What’s in a short sale hardship package?