Qualifying For A Short Sale
Do I qualify for a short sale?
Generally speaking, sellers need a hardship to do a short sale. However, there are ways to do a short sale without a hardship. First, understand there is no guarantee that a bank will agree to accept a short sale and release the loan under circumstances that involve a hardship, much less those without a hardship. Each bank is different and the investor guidelines vary.
This is one of the most common questions we receive and one of the hardest to give a "Yes" or "No" answer to without evaluating all information.
What Qualifies As A Hardship in a Short Sale?
Sometimes a hardship is a matter of perception. A hardship is defined as a condition that is difficult to endure. It may involve a form of suffering. You don't have to be living in a cardboard box under a bridge to have a hardship. You can be an NBA star like Ron Artest, who bought a home for $1.85 million in Loomis, CA, and later sold it as a short sale for $1 million.
The value of Artest's home fell by almost half. He was earning $7.5 million when he bought the home. That income dropped to $5.85 million when he sold. Artest lost about 23% of his earning power -- that's a hardship. Here are sample types of a hardship. Lenders will consider the following conditions, and they don't have to have happened personally to you. It could be a family member who supports you -- financially or emotionally or both -- or on whom you rely for support who has suffered a hardship such as:
- Reduced income (furloughs, new job, partner's loss of job, pay cut)
- Illness or medical emergency
- Job transfer (voluntary or involuntary)
- Divorce, separation or marital difficulties
- Exotic mortgage terms (an adjustable-rate loan)
- Military service
- Death in the family
- Increased expenses and excessive debt
- Unexpected repairs or home maintenance
What is A Strategic Short Sale?
For many sellers, they do not have a "hardship" that fits into one of the categories above, but they owe more than their home is worth and need to complete a short sale.
These sellers do not want to go through foreclosure for a variety of reasons, and they hope to protect their credit rating somewhat. The simple solution would be to do a loan modification that reduces the principal balance below the home's market value. In effect, this would be selling the short sale home back to its owner, thereby letting the owner stay in the home. That would make a lot of sense. But no, that's not how our system in the United States works.
To do a short sale, the seller must sell and move, rent for a few years and then buy a home very similar to or perhaps even nicer than the home the sellers already had. The easiest way to do a strategic short sale is to write a strong and honest hardship letter. Put some thought into it. What may not be a hardship to your son's English teacher can very well still be a hardship to you. If you own a home in San Diego and your job transfers to you Hawaii, that's a hardship, even though some people might consider Hawaii to be one of the best places to live in America.
Many times, just stopping payments can be enough to motivate the lender to work with you on a short sale.
If you are pursuing a short sale, make sure you:
- Hire an experienced short sale listing agent.
- Talk to a lawyer familiar with short sales.
- Obtain competent tax advice about possible tax consequences on canceled debt.
- Price your short sale in line with the comparable sales to minimize the loss to the lender
As mentioned above, there are many factors that are looked at by the lender when they are evaluating your short sale. We have completed hundreds of short sales and can help you determine if a short sale is a viable option. Contact us today to discuss your options. There is never any cost or obligation.
And if you are still learning about short sales, make sure to read our Frequently Asked Short Sale Questions.