A Short Sale is often a last resort alternative to foreclosure. It is, in simple terms, a seller's attempt to sell their home for less than what is actually owed on the property. In most cases (but not all), you must have a "hardship" for the lender/lienholder to consider accepting the short sale. As far as they are concerned, they would much prefer it be your problem than their problem. So, you are going to need to make it their problem. This often means showing them that YOU have no choice, and proving that their only alternative in the forseeable future will be to take the property back by foreclosure.
Just because you are upside down and can't sell your home for what you owe is generally not good enough. Your best chance at an approval is to provide them with a legitimate hardship AND you should be able to prove it.
Basically, you need to show that you CAN'T continue to make your payments as agreed. If you have money in the bank and income to support your current mortgage payments, it will be a challenge to get your lienholder to buy into the idea that you are truly experiencing a financial hardship. If nothing has changed since the time that you originally purchased, you probably won't be able to prove a financial hardship, unless you never should have qualified for your loan in the first place.
Your package needs to make sense. Remember, if the lender/lienholder can find a reason to continue to hold YOU as the resonsible party, they will. They don't want you to short sell, they want you to continue to make your payments on your upside down mortgage.
By definition, a Hardship is a:
1. condition of life that is difficult to endure or 2. something that causes suffering
You borrowed the money and you agreed to pay it back. Now you can't. Why?? What has changed, other than the market decline, where you can no longer TRULY afford your payments?
A hardship may be the result of:
- Reduced income
- Illness
- Disability
- Job relocation/Transfer
- Divorce
- Job loss
- Military duty
- Incarceration
- Failed business
- Increased Mortgage payment (ARM/Interest Only) beyond your level of affordability
- Increased Debt out of your control (i.e. Medical bills or tax bill, not the cable bill)
- In some cases, a lender will approve a short sale simply based on your income to debt ratio.....even if it is obvious that you simply overspent and are now simply stretched too thin. It really depends on the investor and servicer/lienholder, and sometimes it comes right down to the negotiator working your case. In most cases, though, the bottom line is that the lender could care less if you ever pay your credit cards again, that is not their problem. They'd always prefer another financial institution take the hit. What they care about is if you can afford your essentials (food, childcare, utilities) and your mortgage, that's about it.
With all that being said, the reality is, there is no one absolute guideline to be had for any particular lender. Some WILL let you squeak through without a hardship! But mind you, the number is SOME, not ALL, and I said "squeak" through, which may mean you have Lady Luck on your side! It often comes right down to the person reviewing the short sale package. Sometimes, they just want to move it off their desk as quickly as possible and do not pour over the details. Others go as far as pulling your credit to see if you are delinquent with other creditors! There is no hard/fast rule, which is not necessarily a bad thing as each client has their own story.
I did have one case where I had a seller who was doing well financially. He had money in the bank, and income that fully supported continuing the mortgage payments. He was upside down by about $100k, and was even willing to come to the table with some money if need be, but he had to move out of the country to care for his parents, particularly his ailing father. I warned him that he may very well need to come to the table with money but we got lucky....the lender, CitiMortgage, approved the short sale and required $0 from the seller!
His hardship was not financial. But, he DID have a hardship. His hardship was that he had to move. Not WANTED to move, HAD to move. He also defaulted on his payments, which let the lender know that he was serious and that their alternative was foreclosure. Not to mention that the lienholder is CitiMortgage, who I can say that I have had the most success with.
His case is somewhat of an exception to the "hardship" rule.
I had another "exception to the rule" where there was absolutely NO hardship, financial or otherwise. The first, Bank of America, approved the short sale, no strings attached! The second lienholder, National City Mortgage, eventually agreed to a $12,000 payoff directly from the sellers, specifically because there was no hardship. It was worth it to them to pay this, as this second lien was a recourse loan. But they got their approval, and avoided foreclosure. It CAN be done.....sometimes even without a hardship.
The most important piece to your short sale package is the Hardship Letter. Whatever your hardship may be you will need to write a letter explaining your hardship in detail. Honesty, above all, is the best policy. Short Sale Negotiators were not born yesterday. This is what they do, however, it doesn't hurt to make them cry! Don't be afraid to write why you came to where you are in detail, and a handwritten letter is always best. "Negotiators are people too". Simply stating that you are letting your house go because the value of your home has significantly decreased is not sufficient reason for them to approve a short sale. You generally need to meet their "hardship" requirement. They usually need to be able to check the "hardship" box on their checklist that THEY have to turn into their supervisor, or approval of your sale gets complicated. So give them something they can use! Just be truthful, but be sure they understand that you truly can no longer afford to make your payments and your only alternative is foreclosure/short sale.
If you DO NOT HAVE A HARDSHIP, that does not necessarily mean your short sale won't be approved. If the lienholder considers an approval, they may also want you to come to the table with some cash to offset their loss. But don't expect it to be approved, and be prepared for foreclosure. The bottom line is that you are making a business proposal.....accept this short sale or I will foreclose. The lienholder/investor then has a financial decision to make.
If you don't have a valid hardship, a short sale may still be worth a shot.....if your only alternative is foreclosure. We will try and do all that we can, but that's all that we can do. If they don't approve the short sale, you will be no worse off than you were if you were just going to walk away. Our services are free to you, so what do you have to lose?
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Jessica Sulliman & Randy Curnutt
602-677-7977
www.ShortSaleMyPhoenixHome.com
About the Author...
This article was provided by Jessica Sulliman, a Nationally recognized Realtor and Certified Short Sale & REO Specialist. Jessica can be reached via e-mail at jessica.sulliman@ashbyrealty.com by cell phone or text message at 602-677-7977. Jessica has helped thousands of people buy and sell their home. For Arizona real estate and homes see www.sunshinespecialists.com or www.jessicasshortsales.com. For more info regarding short selling your home, please visit www.shortsalemyphoenixhome.com.
Specializing in the following Metro Phoenix areas in Arizona: Queen Creek, Gilbert, Chandler, Mesa, Scottsdale, Apache Junction, Gold Canyon, Tempe, Florence, San Tan Valley, Coolidge, Casa Grande, Eloy, Maricopa, Ahwatukee.
Check out my blog: http://jsulliman.activerain.com
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