The hardship letter is the key to a successful short sale
All Charleston real estate agents are required to take continuing education classes every two years as part of their license renewal. This year, the number of hours required was increased from 8 to 14 (and that's actually a good thing because believe it or not, you can really learn some good things). This past Friday, I took a two hour class on short sales because current market realities indicate to me that we'll be seeing them for a while. And while short sales are not new, they haven't been a very big part of the real estate market since the last big real estate recession in 1991.
When market conditions deteriorated and the first short sales starting coming on the market, the chances of successfully closing were the proverbial slim and none and slim left town. But with the cost of foreclosure growing higher, the loss mitigation department at many banks (while busy) are somewhat more receptive these days.
But can you just list your home as a short sale and successfully sell it for less than you owe.
Not so quick. And while it's called a short sale, it is certainly not a quick process for either buyer or seller. For buyers, let's take care of this issue first, don't start packing and call the moving van. The process will generally take a while and even with a contract that has finally been approved by the third party lender, you still may not close the transaction.
For sellers: The hardship letter is the key to a successful short sale.
I forget where I found this and I'm sorry that I can't credit the author but here are the 23 acceptable hardships when a lender will accept less than what is owed on the property.
• Death of Principal Mortgagor
• Death of Mortgagor's Family Member
• Illness of Principal Mortgagor
• Illness of Mortgagor's Family Member
• Marital Difficulties
• Curtailment of Income
• Unemployment
• Excessive Obligations
• Abandonment of Property
• Distant Employment Transfer
• Property Problem
• Inability to Sell
• Inability to Rent Property
• Military Service
• Business Failure
• Casualty Loss
• Energy-Environmental Costs
• Servicing Problems
• Payment Adjustment
• Payment Dispute
• Transfer of Ownership Pending
• Fraud
• Incarceration
IMPORTANT: A short sale seller has to show true financial hardship explaining the circumstances of why it is impossible for them to pay the full amount of the loan. Generally, someone with assets or the income to pay cannot just walk away from a short sale without signing a note with the lender to repay what they owe.
And, possibly even more important:
Unless your employment circumstances have drastically changed, a gap between your income when you took out the loan and your current income could indicate mortgage fraud. So if you exaggerated your income on your loan application, be aware.
As always, consult with an attorney and financial adviser.
Here is an excellent article written for real estate professionals regarding successful short sales from Realtor Magazine.