Hardship Reasons other than Financial - Help

I am trying to approve a short sale and the bank said the seller has no financial hardship. Seller has never said so and always made full disclosure, in his hardship letter, that he needs to move out of the State due to a family emergency. It turns out that it is taking too long and both parents passed away - absolutely true - the last one two weeks ago. I know that someone can have various types of hardship, not only financial. It is not a reason to do a short sale if you don't like your house, think you did a bad deal or want to buy a condo, for example. But a divorce, death and illness in family are true hardship reasons.

Has anyone got an approval for a short sale where there was a hardship other than financial? 

Is it possible that a Judge will order the bank to do a short sale? 

Any thoughts on this will be much apreciatted!  

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Permalink Reply by Richard on September 2, 2011 at 7:32am

Hi Maria,

 

I'm just a little curious.  Am I understanding you correctly that now that the seller's parents are deceased, he just want to pack up and leave?  It that the bottom line?  Did I read the original post incorrectly?  Please correct me if I'm wrong, but wasn't the hardship prior to them passing, assuming that he was a power of attorney?  Now that death has occured, what is the hardship and why is the move necessary?

 

Maria wrote:

I am trying to approve a short sale and the bank said the seller has no financial hardship. Seller has never said so and always made full disclosure, in his hardship letter, that he needs to move out of the State due to a family emergency. It turns out that it is taking too long and both parents passed away - absolutely true - the last one two weeks ago. I know that someone can have various types of hardship, not only financial. It is not a reason to do a short sale if you don't like your house, think you did a bad deal or want to buy a condo, for example. But a divorce, death and illness in family are true hardship reasons.

Permalink Reply by Jeff Payne on September 2, 2011 at 7:33am
Lydia, I agree 100%.  There are a few of these that could be checked. Death in the family could lead to hardship providing that the death lead to financial issues.  I am very interested in seeing what this one actually is

Lydia Terry said:

Here are the checkboxes on the financial statement:

 

Abandonment of Property
Excessive Obligations
Military Service Other
Business Failure
Fraud
Payment Adjustment
Casualty Loss
Illness in Family
Payment Dispute
Curtailment of Income
Illness of Mortgagor
Property Problems
Death in Family
Inability to Rent Property
Title Problems
Death of Mortgagor
Incarceration
Transferring Property
Distant Employment Transfer
Marital Difficulties
Unemployment

 

 

There is a box for other.  Sounds like you have an other, and we will help with that.  All you simply have to do is explain why paying the mortgage after the hardship is difficult.  That's it.  After the death in the family, why did that affect the mortgage?  That's all you need to do.

Permalink Reply by Lydia Terry on September 2, 2011 at 9:08am

Honest i would just have them write,

 

"Due to a illness in my family, which resulted in a death of my parents, I need to move to be closer to family.  I now have financial and emotional obligations to my family members.  However, I am unable to sell my home because I owe more than it is worth.  I do not have the means to make up the difference.  I did a budget and I cannot afford the negative cash flow between my mortgage payments and rental income and pay for the rents on my new home.  I do not intend to keep the property.  I saddens me that I cannot pay my mortgage.  I am asking for your assistance in a short sale.  I have hired an agent to get you the best possible value."

 

The financial statement WILL have to reflect this if you write it.  If they can afford the difference, and can take the negative cash flow, then you're going to have to write,

 

"Because of a death in the family, I need to move to be closer to the rest of my family to be financially and emotionally supportive.  I have not been able to have an equity sell.  If you look at my financial statement, it may appear that I have money to settle this, however this money has been earmarked for my family.   I do not intend to rent the home, and I do not intend to continue making my mortgage payments.  I have been advised by my accountant to let the home go, however I feel that a short sale would be the most honest thing to do.  I have hired an agent to short sale my home to find you the best possible price.  Please consider a short sale."

 

Prepare your clients for a deficiency judgement for this.  They may be asked to carry a note, or to bring in an amount.  Its usually around $3000.  If you are in a non-deficiency judgement state, then you are basically going to play chicken with the bank.  The bank gambles that you don't want a foreclosure on your record, and you gamble that the bank would rather let you short sale than to take the loss on the foreclosure (which is typically 20%). 

Permalink Reply by Richard on September 2, 2011 at 1:28pm

Lydia,

 

I don't know for sure but, it wouldn't surprise me at all to see a letter come back from the lender that say "We will now have financial and emotional obligations to our shareholders, investors, and possibly taxpayers by taking on this loss.  When and if, federal audits are required, there will not be an explanation for this policy deviation?"  I'm not trying to burst your or your client's spirits or anything but, I can see them even asking, why can't family members in need, relocate?   Guess who's going to win?  Just a thought.......

Permalink Reply by Bryant Tutas on September 4, 2011 at 1:18am
in the newsletter today
Permalink Reply by Michael Dougherty on September 4, 2011 at 2:03am
I believe that your state is a non deficiency state! Is your client still making payments?
Permalink Reply by Cliff Stanwick on September 4, 2011 at 3:29am

You are done. The Investor says you do not have a "financial" hardship.

 

The key is financial although I was involve with a successful short sale with a NBA player. FHA loan products have a requirement of financial hardship and I've had the "Investor" deny the financial hardship even though it looked obvious when looking at is taxes and bank statements. They denied his short sale saying he didn't have a financial hardship, they denied his subsequent loan modification because he didn't make enough money, the "bank" foreclosed. Central Mortgage was the servicer. 

 

If he has any ability to pay you have a problem with a FHA product in a short sale. If you have provided the bank with the ability to pay the debt you have lost. 

 

FWIW you need to walk away from this for if you advise him to stop making payments you may be a party to fraud especially since you know and he has told you he can pay. Talk to your Broker about this file. 

 

Permalink Reply by Thom Colby CA Brkr 888-391-5245 on September 4, 2011 at 4:27am

Maria,

 

An unexpected move of more than 100 miles can be considered a hardship but it doesn't sound like your seller is clearly defining exactly the financial hardship in what I've read so far.

 

I'm sorry this person has lost both of his parents in a short while, but does this mean the "emergency" is no longer an issue?  Or, does he need to move permanently for a reason related to the parental deaths?  As others have said, HE has to have a hardship that was initiated by something "out of his control".

 

Did you have a detailed and frank conversation with him before you listed the property?  What did he define as the out of his control financial hardship?

 

As for a judge decreeing that the bank MUST take a financial loss - it's very doubtful that will ever happen, other than through Bankruptcy.  In fact, if he qualifies for bankruptcy based on his current situation, he would likely qualify for a short sale.  Think about that........  (Let me know if this actually happens!!)

 

So here's another way of thinking about it.....  Let's say YOU lent someone $10,000 and they start repaying you.  At some point, they have a family emergency but don't stop paying you each month because they can still afford it.  Then suddenly, they tell you they still have no hardship but they only want to pay you back the $3,000 they've already paid you so just send a release of the debt.  Does that work for you?  You know he can pay it, he's never said he can't, but he's simply not going to pay you any more than he aready has - and - he's going to get a judge to say so!

 

I think you need to "vett" short sale listings a little more before spending all this time.

 

Best of luck,


Thom Colby

Broker

Newport Beach CA

Permalink Reply by Paul Jones on September 4, 2011 at 5:05am
Absolutely Lydia. Medical problems. Psychological problems. etc. Medical costs too. There are also privacy laws so a lender can not ask for proof.
Permalink Reply by Richard on September 4, 2011 at 5:28am

Yeah, I think there is psychological problems alright, and it's all over this analogy.  If you can play, then you can pay.  No way to weasle out of this.  As I mentioned earlier several posts, the McDonald's drive-thru supersizing theory, then bail is coming back to bite us in the @ss! 

I lost father-in-law to alzheimer who we were taking care of this past January, then my mother-in-law took a turn for the worst, but that didn't give me a reason to walk away from my financial obilgation.  I licked my wounds, thighten up my boot straps and got back to life.  That's what real men do!!

Permalink Reply by Mike Ashcraft on September 4, 2011 at 8:02am

I think we should reign in some of these comments.  We don't know the whole story yet.  This site (in my understanding) was created to help each other with ideas and encouragement to successfully complete SS transactions.  IMHO the negative or judgmental platitudes don't have a place here.

 

To address the original question:

Yes it is possible to do a SS without a technical financial hardship.  Lydia is correct in that whatever the Hardship, the most weighted criteria for the bank is going to be is it involuntary.  I just closed on a deal where they were current on their mortgage and were making good money, but they had an involuntary job transfer out of state.  They would not have been able to rent the house for near what the monthly debt service was and so the bank approved it and even the MI company didn't ask for a promissory note or cash settlement at close.  (That REALLY surprised me.)  

Permalink Reply by Richard on September 4, 2011 at 8:14am

Mike,

 

The key word you mentioned was "involuntary". That's quite different than a voluntary leave. If your employer can show that you're being transferred, then you have proof!  You either go or be terminated from employment, then in that case you can not make your payments.  The lenders see this issue.  But, if you're just wanting to get away, then that's different.

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