As someone who exclusively negotiates Massachusetts short sales, I receive about three to five new short sale referrals every week from local real estate agents or distressed homeowners. While it may come as a surprise, I actually reject quite a few of these short sale requests. The most common reason I refuse to submit a short sale package to the lender is due to an insufficient homeowner hardship. In order to qualify for a short sale, all lenders require a financial hardship. More specifically, most lenders require an involuntary hardship. An involuntary hardship is some event, beyond the homeowner’s control, that caused the mortgage payments to become unaffordable, even if only temporarily.
For example, a loss of job or curtailment of income is a lender approved hardship. It is important to note, however, that most lenders distinguish between someone who lost their job and someone who voluntarily quit their job. Even if you are able to prove to your lender that you are no longer able to make your mortgage payments, you still need to prove that your inability to make the payments was involuntary. Thus, unless you are able to prove that you were forced to leave your job, or asked by your employer to take a significant pay cut, a change of employment status may not automatically qualify you for a short sale. Furthermore, many homeowners have suffered multiple hardships, and it can be difficult deciding which hardship you should present to your lender when requesting a short sale. In all of my short sales, the most successful cases are those in which the homeowner is able to show that the hardship reason was involuntary and beyond their control. A good hardship letter will list all of the reasons, but the most effective letters focus on the involuntary hardship.
Lenders typically require a short sale hardship in order for a seller to be eligible for a short sale.
Due to the recent foreclosure problems in Massachusetts, lenders have bolstered their loss mitigation departments and are approving more short sales than ever before. Most lenders have a list of approved hardships which act as a benchmark for individuals contemplating a short sale. There are, however, many situations which may not automatically qualify as a lender approved hardship and need to be examined on a case by case basis.
As someone who only gets paid upon a successful completion of a short sale, I use my experience to analyze each homeowner’s situation, coupled with their specific lender’s hardship requirements, to determine whether their short sale request is likely to be approved. This way, I don’t waste my time, the lender’s time, and most importantly, the homeowner’s time if a short sale is not a viable option. The most common lender approved short sale hardships are the following:
- Loss of employment
- Curtailment of income
- Increased mortgage payments or increased monthly expenses
- Loss of tenant(s)
- Divorce or legal separation
- Catastrophic medical event or illness
- Job relocation
- Military service
- Death in immediate family
Editor’s note: To every rule, there is always an exception. Some lenders may not be subject to investor restrictions or servicing agreements and merely want to get rid of a non-performing asset. As a result, these lenders do not require an involuntary hardship and merely require the financial inability to pay the mortgage. If you are in the Greater Boston Area and are considering a short sale, please contact us today at 617-264-0376 and we can quickly determine whether a short sale is right for you or your client.
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About the Author: Andrew Coppo of Greater Boston Short Sales, LLC (GBSS) is Massachusetts’ leading short sale negotiator. GBSS assists buyers, sellers, real estate agents and attorneys with getting their short sales closed. Contact us today if you are a homeowner facing foreclosure or a Realtor seeking assistance with a short sale transaction. GBSS is a MARS provider. Please read our disclaimer HERE.
If you are considering a Massachusetts short sale, and would like a free short sale consultation, please call Andrew Coppo to schedule a meeting or a telephone consultation at (617)264-0376.
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Hey Andrew, well written.
I, like you, own a company here in Texas that negotiates short sales for homeowners and realtors alike. We also see many situations in which the homeowner has a hardship, and you are dead-on correct, the owner’s hardship should be involuntary. I can’t say that we’ve had many that weren’t, but there is the occasional owner that just wants to walk away because they read an article on the web that said they could, but then realize that they should probably try a short sale once they contemplate the reality of possible foreclosure damage. But, the problem usually boils down to, as you stated, their hardship.
I’ve actually had perspective clients try and “create” one, just to attempt the short sale. Although I do understand why a distressed homeowner, who’s property is underwater by 10’s of thousands of dollars, may WANT to do a short sale, if they really CAN afford the property, it’s likely the lender won’t allow it.
And yes, there are exceptions. The reality still exists that the lenders don’t want the house back as an REO, and many savvy owners will play into that fact, trying a short sale even if their hardship is NOT involuntary. And, low-and-behold, there are lenders that would still welcome the chance to accept a short sale rather than the expense of foreclosure. Here, in Austin, we have helped a handful of homeowners with this scenario, and all things considered, the short sale was still the best option.