Financial Hardship Status

The reason most lenders will comply with a short sale is to avoid the time, trouble and costs of a foreclosure. In the past, most lenders would not allow a short sale if the homeowners were current with their loan payments. Today, that is not the case as more banks are realizing that there can be other factors contributing to a potential default, and they are actively seeking ways to head off future problems before they get started.

Getting a lender to approve a short sale is more than just a matter of economics and proving that the amount of money the bank will receive from a short sale is more than it would get from foreclosing on the property. These days aspiring short sellers will also have to submit a letter of hardship explaining why the seller can not pay the difference due upon sale. The hardship letter will also indicate why the seller has or when they will stop making the monthly payments too.

Proving financial hardship to your lender requires accurate information as to the exact nature and depth of the problems involved. Lenders will not accept vague claims and speculation either, they want facts. Solid evidence of financial hardship that will be accepted by a lender includes unemployment, divorce, medical emergencies, sudden illness, bankruptcy and death in extreme cases.

Human nature includes trying new things and people have tried to get lenders to accept many new tactics in order to qualify for financial hardship status and most of them fail. One of the things that a lender will not consider as a hardship qualification includes being broke because you spent all your money on something else you thought you needed. That’s just bad decision making and not financial hardship. Likewise, just because your wife is pregnant and you’re starting a family does not constitute a legal hardship. It may definitely be a hardship in the home, but the pregnancy was a lifestyle choice. Wanting a new house or being unhappy with your existing one is not a hardship either, it is not the lender’s problem care if you have decided your home is no longer suitable for you or your family.

A short sale will not show up on your credit report, but the status of your loan may show that has been redeemed, which is often reported as Paid in Full for Less Than Agreed and that can affect your credit rating. Even if the damage to your credit report may not seem as bad as a foreclosure would have been, your creditors may not make the distinction. As with most major legal and financial issues in life, it can be a real help to consult with an attorney before attempting to pursue a short sale on your own.