Homes in The Remember: No BS !


Short Sales & the Hardship Letter

The most important and aspect of a short sale, and one that is very often misunderstood, is the issue of hardship and the hardship letter.  Simply put, banks will not forgive a portion of the amount of money owed on a loan merely because the homeowner wishes to sell their house, and the proceeds will not be sufficient to pay off the loan. Rather, before any lender will decide to take such a loss, the homeowner must first display a significant hardship that makes it clear to the bank that if they don’t allow the short sale to go forward, they will likely end up with the more expensive and drawn-out process of foreclosure.

What constitutes legitimate hardship?  A few examples:

Unemployment or job change that results in significant drop in income; Death or extensive illness of principal wage earner; Marital problems; Family illness causing significant Medical Expenses

In the process of investigating these hardships (and every other aspect of the homeowner’s life!), the bank’s ultimate objective is to determine whether or not the homeowner is likely to be able to continue to make their monthly payments.  Rest assured that if the answer to that query is “yes, the homeowner is able to continue making payments”, the bank will not agree to forgive any shortfall between the proceeds of the sale of the house and the amount that they are owed. 

One very simple factor that the bank will consider in trying to make this crucial determination is the current status of the loan.  To be sure, no responsible REALTOR would ever suggest that a homeowner renege on his/her legal obligation to pay their mortgage. This is a personal decision that sellers need to make for themselves after consulting with an attorney.  It is, however, important to bear in mind that a bank will only consider a short sale if it thinks the chances of foreclosure are high.  And if a struggling homeowner has been unable to make a payment for 2-3 months, the lender may very well conclude that there is, in fact, a legitimate hardship in place, and that in the absence of the short sale, foreclosure will be imminent.

A bank might, of course, approve a short sale while the owner continues to make payments.  In so doing, the bank will likely require a promissory note or a substantial amount of cash from the homeowner at closing.  The less your hardship, the more likely it is that the bank will want something from you at closing.  And remember that during the entire drawn-out decision-making process, the bank WILL find out everything about you and your finances! 


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