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 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.
A hardship may be the result of:
- Reduced income
- Job relocation/Transfer
- Job loss
- Military duty
- 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, and the harship can be a combination of any of the above as well.
Some will allow you to squeak through without a hardship, but it ultimately comes down to the the inforamtion submitted in the package and 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.
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.
With some cases, the seller does not necessarliy havea to be behind on their mortgage if they can show that they have depleted their savings to try and make the payments. There still needs to be a legitimate hardship such as relocation, divorce, or illness as a condition of the request.