"Sell my house as a Short Sale and I will Buy One More Expensive....."

Why are you making a judgment that it is fraud?  If you tell the bank the 100% truth, full disclosure, and they still decide to do the deal, where is the fraud?

Thanks Sally & David for this blog.  The short sale used to be all about hardship... the bank making an exception to those in need.  For some reason, buyers, sellers and some agents believe that it is some sort of requirement for the bank to accept a short sale now.

People taking advantage of the system is the exact reason why the system is so complex right now.  I started to do short sales to help people in need.  Now I hear about people using them to get a larger house.... makes me sick to my stomach.

One thing I've seen in real estate though.... you can get away with it today, but it doesn't mean you won't be tracked down later!

It will continue to be a problem -- but I think the "greater good" IS being served by making people aware of the fact that Short Sales have significant advantages over Foreclosure!!

Seeing more "Short Sale Opportunists" like what you're dealing with is an inevitable side effect .. but I think it's worth the cost as long as we're making the American public more informed!!

Hi Michael,

      I have never done a short sale without a hardship.  But when I read about all of the short sales done without hardships, some without a hardship letter, what should I think?  The bank makes the rules for the short sale and they can change the rules.  If they want to approve the short sale, for whatever reason makes sense to them, who am I to judge?  The bank has many lawyers and real estate experts on their staff.  Full disclosure and I do not make decisions for the bank.  The bank can decide what is best for the bank.

While all lenders require a hardship letter, not all lenders place the same amount of importance on how it affects their decision to approve the short sale.  In addition, different lenders have different opinions of what is "verifiable", "legitimate", etc.

This inconsistency has created a serious "grey area" when it comes to hardships.

Some of the short sale training gurus claim that in order for a hardship to be "legitimate", it needs to be one of the following:

Loss of job, death of spouse, loss of employment, divorce, etc...

While these are all serious, life-changing events, there are a myriad of other hardships as well.  What about the teacher who is still waiting on their contract to be approved for the following school year?  Or, when one of the wage-earners is working two jobs, and can no longer do it because they just had another child and need to stay at home?  The list of circumstances goes on-and-on.

Don't limit yourself to only what the short sale trainers say.  Go with your gut, talk to other agents, read the blogs, and do whatever you can to help your client avoid foreclosure.

All we can do is listen to our clients' situation, advise them as best we can, and decide if the chance of not getting the short sale approved is worth our/their time.  If it's not a deal that you think will get approved, move on to the next client.  Or, if you find it to be ethically immoral, walk away.

In recent months, we've closed several listings where the seller did not have what most of us (or some of the so-called short sale training gurus) would call a "legitimate hardship".  What I've learned is that at the end of the day, if the short sale is in the best interest of the bank, the seller, and the buyer (vs. foreclosure), then who are we to stand in the way?

We recently closed a short sale for a couple that purchased their home in 2005 for $400,000.  Both are still employed, but are constantly being warned from their respective employers that their hours MIGHT be cut in the next 6 months.  Their financial analysis form & bank statements showed them being barely capable of covering their mortgage each month.  We sold the home for $150,000.  Realistically, it would have probably taken them 3-5 years to recoup their loss.  The husband's parents bought another home for the couple (which we helped them find), and they are now making payments to them.  The home is larger, in a nicer area, and they paid $200k for it.  They've since referred two acquaintances to me to help them with their short sales.  So, do I lose sleep at night for helping them out?  Heck No!

In other words, determining the "legitimacy" of a hardship is better left with the lenders, not the real estate agents. Each case needs to be looked at on an individual basis, as each lender deals with hardships differently.  If you don't ask, you don't get.

With that being said, the beauty of this is that we, as agents, can choose to simply "walk away" from a listing, if we're not comfortable with what we are hearing.  

This is an excellent blog post that I'm sure will produce a variety of opinions/insights.  Thanks for writing it!

There are still homeowners that think the bank will just accept a Short Sale and call it a day. Not the case, as you have pointed out. Short Sales will only be accepted if there is a true Hardship.

This is hard to write because you do not fully explain this persons hardship and you contradict yourself.  On the top you state 20 minutes and in #49 you state 10 minutes. 

Yes, it can be a hardship if the bank accepts it.  You do not state if they are already driving 2 hours a day each way.  You do not state if they have to pick a child up by a certain time and face a fine every time they are late. Maybe he is working 2 jobs and the extra 10 minutes means he will be late to work every day and he will lose the second job. Maybe there were 10 little reasons and this one was the "straw that broke the camels back." 

And no, another agent is not unethical to present the information to the bank and let the bank make its own decision.  The bank can say yes or the bank can say no.  It is the banks decision.

Robert told you about a deal that did not meet your criteria and the bank approved it.  If you read other blogs here, some banks in certain situations have approved short sales for investors, for high income people, for people who could afford to make their payments.  Do the banks not know their own rules?  Are the banks unethical for approving these transactions? 

I joined Activerain to gain knowledge from other agents.  Sometimes I do not agree with them.  Robert has said that he has done this deal.  Maybe he knows something that you and I do not know as neither of us have done a similar deal.  Maybe we both can learn something.

No need to apologize.  Let me clarify...  I too, have always had a hardship letter included in my short sale packages (all signed by the Seller, of course).  I haven't run into any lenders that will accept an unsigned hardship letter, as you pointed out.  As we all know, a hardship letter is required by all lenders, and I won't take a listing without one.

Now, let me share with you what I've also learned not "from an agent", not from the "bank's mouth", but from the banks actions...

I'm pretty sure that all of my closings had "legitimate hardships" (as you call them), because they closed...Right? After all, if the weren't "legitimate hardships", they would have never been approved.

While I'm not sure what you mean by "start over money" (how does a seller get any money out of a short sale?), I can tell you that I never list a property "at market value, plus commissions".  I've learned that pricing it just above market value, and moving the price down until we obtain an offer, is the best strategy.  Again, that's my opinion, and I'm not trying to tell you how to run your business.

The point of my comment was simply, "Who are we, as real estate agents/brokers, to determine what classifies a hardship as "ethical" or "less than real" hardship situation, as you pointed out?  Isn't this for the bank to decide, especially in this environment where each bank is making up/changing the rules on a daily basis?

Like you, I know many "bankers".  Most of them don't have a clue to what is actually going on in the real world of short sales (they're too busy golfing).  As you know, we are forced to deal with the $10 per/hour "underlings" that are making huge financial decisions (and determining what is an "ethical" or "less than real" hardship situation).  Truth be told, in most cases, we ARE NOT dealing with bankers, but loan servicing companies (whether it be BofA, OneWest, Wells Fargo, etc.), who are making these decisions for the investors that own the loans.  Do you think these guys have an ethical/moral bone in their body? 

I simply tried to come into this discussion and offer what I've learned recently in closing short sales, and even gave you credit for what I think is a great blog post.  You chose to patronize my response by apologizing (for what reason, I don't know), then talk about signatures on hardship letters, and something about some agents that list their homes with "start over money".

All I know is that after 9 years as the owner/broker of Summit Home Consultants, I sleep well at night, knowing that I've done everything I could to help my clients and the people they have referred to me.  In those 9 years, I've never had a complaint registered against our company, and have never been threatened with one.

In my opinion, our fiduciary responsibility doesn't lie with the lenders we deal with, or other realtors, for that matter.  it lies with the clients that hired us to keep them from going into foreclosure.  I could care less how a $10/hour negotiator at ABC Bank thinks about my "ethics".  If they feel that they are better off foreclosing, so be it!  Move On!  

I sleep well knowing I helped another homeowner avoid foreclosure, dreaming about the next referral he/she is going to send my way.

Sorry to write such a long response, but I'm really shocked at your response.  I simply shared what I'm seeing in the marketplace, and thought I'd share it with the rest of the readers.  I never thought it would turn into this, but, "it is what it is".

Sally and David,

The whole short sale market is so confounded it's hard to decide whether to even take a buyer to some of the listings.  Sometimes priced so low relative to what is owed that you have to think it could never close.  Just saw one house recently go from $129 to 149k after having been Pending.  Looks like the bank realized they weren't being given anything close to market value (and they weren't).

Sally and David,

Good tip on the track record.  The few we've seen that made us particularly wary, the agent had no track record, and the homes were grossly underpriced for what they were.  A recipe for keeping your buyer hung up for months!

Hardship is having to take a shower, brush the teeth, shave, dry the hair, get dressed, and then drive 20 minutes to work. LOL

Hardship is having to take a shower, brush the teeth, shave, dry the hair, get dressed, and then drive 20 minutes to work. LOL