What To Do If Facing A Short Sale
Writing the Perfect Short
Sale Hardship Letter
Do you want to walk away without owing the bank a dime? Find out how to write the perfect hardship letter for a short sale.
After closing hundreds of short sale properties in Georgia, the
biggest question we get asked from homeowners is, ?Do I have a hardship and
will I qualify for a short sale?? While each person?s financial situation is
unique, the fact remains that practically everyone in Georgia is experiencing
hardship to some degree. Let?s face it, our homes have lost more than half
their value, and our state leads the nation in foreclosures and mortgage
While we can all agree that the majority of Georgians are facing hard times,
this will not be enough to convince the bank to forgive you from your mortgage
obligation. You will need to come up with some facts and evidence to show the
bank that your hardship is legitimate. Hardship can be defined as an increase in
your expenses and/or a decrease in your income. You do not need to be poor to
qualify for a short sale. In fact, actor Nicolas Cage successfully completed a
short sale on his Las Vegas home, and he makes millions of dollars each year.
When you inform your bank that you are considering a short sale, the first
thing they will do is look at the financial documents which you submitted when
you bought the house. Unless you paid cash for your home, you had to qualify
for a loan, and you submitted pay stubs, tax returns; W-2?s and bank statements
to your lender showing that you could afford the mortgage payment. When you
apply for a short sale, you will be asked by your bank to provide a current set
of the same financial documents because the bank will want to see what has
changed in your financial situation that is preventing you from fulfilling your
mortgage obligation. Your lender will compare the two sets of financial
documents, however, numbers only tell part of the story. This is where you will
need to prepare a convincing hardship letter to plead your case.
After assembling hundreds of short sale packages we have found that more than
any other document, the hardship letter can make or break a short sale. While
banks care most about dollars and cents, it is important to remember that the
package will be reviewed by an individual loss mitigator. Like the rest of us,
this loss mitigator is a real person with real emotions who cannot help but be
influenced by a sincere story of hardship.
It is important that you put some effort into writing the hardship letter. The
borrower should write the letter in their own words, but they need to make sure
that there is a clear picture of their financial condition, and back up their
claims with documentation, such as pay stubs, proof of reduction in hours at
work, illness, medical bills, job layoff letters, and more. Inability to rent
your property, marital difficulties and military service can also be considered
a hardship. The numbers should clearly illustrate that the borrower is headed
for foreclosure or bankruptcy. This will motivate the lender to cooperate.
Lenders are all about numbers, so the letter isn't a sob story about the
borrower's difficulties. It should be a factual description of a financial
situation that is leading up to a bankruptcy or a foreclosure on their home, or
both. The lender must be convinced that their only other option is foreclosure,
and then they can analyze the numbers to see if a short sale is a preferable
The short sale hardship letter can be typed or handwritten, but we have found
that handwritten is most effective. It should contain some standard elements at
the top of the letter including the name of the borrower(s), the date, the
lender and the loan number. The end of the document should have the borrower?s
signature with the date, as well as the signature of any co-borrower. The
length is not important so make it as long as needed to have the desired
Sellers facing foreclosure must remember that banks are not looking out for you
or your family. When you work with Fred Yancy and the team at Crye-Leike
Realtors, our job is to get between you and the bank. We represent our clients,
NOT the banks. It is our job to take away the stress and negotiate the best
possible outcome. Ultimately, our job is to help our clients get a fresh start.
Contact us today to get you on the road to recovery (678) 799-4663.
Short Sale Hardship Letter Tips
Basically, the two questions a lender asks itself when reviewing
a short sale packet are:
1) Is this property going to go into foreclosure?
2) If this property goes into foreclosure, will we lose less
money by approving a short sale?
Even if the hardship does not completely meet the criteria of a true hardship, the lender may approve the short sale because they believe that the property is going to go into foreclosure regardless.
NOTE: As you
write the hardship letter, you need to accomplish two goals.
1) Provide as much written explanation of your hardship as
possible. Be specific.
2) Convince the bank that you are unable to make any more
The borrower should write the letter in their own words, but
they need to make sure that there is a clear picture of their financial
condition, and back up their claims to hardship with documentation, such as pay
stubs, medical bills, job layoff letters and more. The numbers should clearly
illustrate that the borrower is headed for foreclosure or bankruptcy. This will
motivate the lender to cooperate.
Lenders are all about numbers, so the letter isn't a sob story
about the borrower's difficulties. It should be a factual description of a
financial situation that is leading up to a bankruptcy or a foreclosure on
their home, or both. The lender must be convinced that their only other option
is foreclosure, and then they can analyze the numbers to see if a short sale is
a preferable alternative.
The short sale hardship letter can be typed or handwritten, but
we have found that handwritten is most effective. It should contain some
standard elements at the top of the letter including the name of the
borrower(s), the date, the lender and the loan number. The end of the document
should have the borrower?s signature with the date, as well as the signature of
any co-borrower. The length is not important so make it as long as needed to
have the desired impact.
What Does NOT
Constitute a Short Sale Hardship
Why are some homeowners asked to pay substantial promissory
notes while other homeowners are not asked to pay a promissory note at all? The
answer can almost always be found by looking at the experience (or lack of
experience) of the Real Estate Agent. There are certain factors which minimize
hardship in the eyes of Banks and Bank Investors, and are essentially
"Short Sale Deal Killers." A Realtor experienced
with short sales will be able to explain the banks perception of
hardship and how it applies to your particular situation.
Here are a few scenarios which are guaranteed to raise red flags
in the eyes of your bank. Bank negotiators are trained to look for these items,
and once a bank has determined that your short sale falls into one these
"minimized hardship" categories, the chances of you being required to
pay a promissory note increase exponentially.
1. Your Mortgage Payment is Current
Banks may not take you seriously if you have the ability to pay
your monthly mortgage. This does not constitute a hardship in the eyes of the
bank. Remember, a bank will only consider a short sale if they think the
chances of foreclosure are eminent. As long as you continue to make your
monthly payment, the bank will likely "sit back and wait" to see if
you will make another payment next month too. It is possible to obtain a short
sale approval while continuing to make your mortgage payment, however, this places
you in a position where the bank will likely request a very large promissory
note or cash contribution at closing. The less your hardship in the eyes of the
bank, the greater your chances of paying a promissory note.
2. Collecting Rents and Failing to Pay Your Mortgage
Banks will cooperate with investors who are experiencing
hardship, however, if you are collecting rent from a tenant and failing to make
the monthly mortgage payment on your tenant occupied property, then this is the
#1 Short Sale Deal Killer. Banks do NOT look favorably upon investors who are
getting paid by a tenant, yet failing to honor their mortgage obligation. In
fact, these types of investors are far more likely to be sued by their bank in
a deficiency judgement lawsuit than anyone else. Non-owner occupied properties
are eligible for short sale approval; however, it is important that investors
understand the banks perspective of hardship. It makes no sense to continue
collecting rent from a tenant, only to wind up being sued by your bank once the
home forecloses. These types of investors will have a hard time convincing a
judge that they acted in good faith.
3. Recent Purchases on Your Bank Statements or Inquiries on Your
When you apply for a short sale, the first thing the bank will do is pull your credit. (Yes, they have the right) They will use your credit report and your bank statements to determine the extent of your hardship. If your bank statements show recent electronics purchases at Best Buy, or show purchases made on a recent vacation to Maui, or if your credit report shows recent credit inquries at car dealerships, etc., then you are going to have a much harder time convincing your bank that a hardship exists. Banks are very smart. They intentionally make the short sale process complicated, to sort out the people with actual hardship from the people who may still have the ability to make their mortgage payment.
A Real Estate agent who is experienced with short sales can help you prepare a workout package which conforms to the banks definition of legitimate hardship. You do NOT need to be poor or broke to qualify for a short sale. Actor, Nicolas Cage is a multi-millionaire, yet last year, he successfully did a short sale on his Las Vegas home. Hardship is not solely determined by how much money a person earns...it also factors in a person's expenses, especially if expenses have increased and income has decreased.
What Does The Bank Consider a Short Sale
Banks will read the hardship letter to assess why a borrower is
having financial difficulties. What situation triggered the problem? When did
the problem arise? How has the borrower attempted to cope with the resulting
The underlying reason behind most delinquent mortgage payments
is what the mortgage industry defines as a "hardship condition." A
hardship is an unexpected financial crisis of some sort. Although it is the
lender who ultimately determines whether a situation will be deemed a
"hardship," HUD guidelines may help determine status. HUD recognizes
the following situations as valid hardships and justification for default:
- 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
- Excessive obligations
- Inability to sell property (this is true for all of Las Vegas)
- Job Relocation
- Property problem (roof leaks, construction litigation, etc.)
- Inability to rent property
- Military Service
- Casualty loss (such as a Hurricane, etc.)
- Energy-Environmental costs
- Servicing problems
- Payment adjustment (ARM Adjusting)
- Payment dispute
- Transfer of ownership pending
- Abandonment of property (due to condition of property, for
It is important to keep in mind that some scenarios may meet
these criteria and yet not be viewed favorably by a lender. Additionally, the
more proof of the hardship which a borrower is able to produce, the better.
To learn more about "How to Survive a Foreclosure or Avoid it altogether!" Click Here!