What Are the Signs of a Hardship?
– By Sheila Surber, MainStreet Properties
Without a defined hardship, it’s impossible to do a short sale.
It’s a hurdle that must be met to start the process.
There are TWO types of hardships– One is a financial hardship, the other is non-financial. While both (financial and non-financial) types of hardships are legitimate, the consequences of each type of hardship can impact the home owner quite differently. When contemplating a short sale, it’s easy to draw the conclusion there has to be a financial hardship. Living in a home whose value is less than the loan is problematic, but not the basis for a hardship. That’s just the toss of the dice when purchasing a home. Values sometimes fall. It’s only a hardship if you have to sell.
Financial changes due to a job loss or transfer, divorce, illness of the head of household, spouse or close family member, or death of a breadwinner are verifiable hardships. These types of hardships usually begin to involve late pays on credit cards, default on loans and mortgages with a resulting lowered credit FICO score. Increasing interest rates, penalties, and interest add an additional burden to the already beleaguered homeowner. My upbringing included the axiom that you pay the mortgage at all costs. Many times hard-pressed homeowners refinance automobiles, max out credit cards, or dip into retirement funds attempting to keep the mortgage current. There ultimately comes a point where it’s no longer possible to keep the mortgage out of default if the hardship persists. It’s best to discuss the possibility of a short sale before this scenario becomes reality and your funds are depleted.
Mandatory Job Transfer– what if your house is under water and you have to take a job transfer out of state? You’re upside down on your loan. It’s impossible to list, market, and pay the commissions & other costs of closing without bringing money to the table. If you can’t sell your home with enough equity or savings to bring to the closing table, you have a hardship.
Unconscionable Loans– Over the last few years, it’s common to find horrible loans, often originated without the
borrower’s comprehension of the type of loan they were getting. Interest -Only, LIBOR ARMs, and Negative Amortized Loans are only a few examples of the ridiculous loans people originated without total disclosure from unscrupulous lenders. We have completed many short sales where this was the basis of the hardship.
Structural Damage or Deterioration– If a home has significant structural damage or has deteriorated to the point that repairs pose a burden on the homeowner, most banks will see that as a hardship, and approve a short sale. We have closed several short sales where the homeowner was able to make the payments, but was unable to perform re- pairs to make the house livable and safe.
Move to Care for Ailing Parents– If the move is mandatory and it creates a hardship for the adult child to complete, due to an upside down property, the qualification for a short sale has been met. One of our clients had to move to provide care for his mother, who’d suffered a debilitating stroke. The son could not sell his property for what was owed, and a successful short sale was completed after his hardship was established.
Condemnation– This home was located in a very upscale country club area, but the property was underwater due to the adjacency of a city renewal project. The condemnation due to the project proved a hardship for the owner who was easily making the monthly payment, but needed to move.
Stigmatized Property– An unfortunate incident resulted in the death of a policeman answering a home invasion call. It was a horrendous accident, and the owner could no longer live in their home where the death occurred. Because the home could not be sold for full value, a short sale was the solution for this homeowner.
The homeowners in all these examples were current on their mortgages. With this circumstance, a homeowner can qualify for an FHA loan immediately after their short sale is closed.