I was recently on a forum talking with other people about real estate. One poster wanted to know about selling her home as a short sale and then purchasing a new home where she was relocating. It brought home to me that with all this discussion about short sales, people are still confused about who qualifies for one.
In order to qualify for a short sale you have to be deemed to have a hardship. If you don’t have a hardship, the lender will most likely only agree to the short sale if you sign a promissory note for the short part. I blogged about this the other day. Just because you want a short sale does not mean you qualify.
So what is a hardship?
- Job loss. Yes if you lost your job, or as we are seeing a lot of right now, had a substantial pay cut, and you can’t pay your mortgage, then you should be talking to the lender about a possible short sale (after you have tried loan modification).
- Health problems. Bad things happen to good people or to children. Some families have gone bankrupt caring for children with health problems. This would qualify as a hardship.
- Death of a spouse or partner. If you were relying on two incomes to pay the mortgage and their was a death of one of the wage earners, then lenders consider this a hardship.
- Divorce. If you have the war of the roses type of divorce then you will end up in bankruptcy court. If one partner isn’t able to take on the home itself and it needs to be sold then this could be construed as a hardship.
- Relocation. If you are relocated for work, which is happening more and more as businesses consolidate and you can’t rent for the mortgage payment, or sell the property you might be able to have the lender consider you a hardship.
- Bankrupt. Many people have spent all of their savings trying to ride out the down market, and there is just nothing left. If you are financially insolvent, then you would be a candidate for a short sale.
Remember that hardships have to be real. If you have $200,000 sitting in the bank and your short sale is $50,000, I think you will waste your and the buyers time trying to negotiate a short sale. Having negative equity in your home and just wanting to be done with it, is not a compelling reason for the bank to take a loss. If you have the means to pay the short, the lenders will require you to pay the short or send the home into foreclosure.
A hardship is pretty basic. Was there any reasonable way for the owner of the home to be able to keep the property and make the payments? Sellers wanting a short sale have to be able to prove that there was no other way for them to be able to keep the house.
If you are wanting more information about whether or not a short sale might make sense for you, you can email me at firstname.lastname@example.org and I’ll be happy to talk to you about whether this is the right choice for you.
Also read How do short sales work?