Short Sales–Hardship Requirements That Must Be Met
A short sale is the sale of a house in which the proceeds fall short of what the owner still owes on the mortgage.
I’d like to make you familiar with the hardship tests required to qualify a home owner for a short sale. This information will help you understand the market better as an investor and aid you in zeroing in on the best deals.
It goes without saying that lenders are unhappy with short sales
Bad Health Chronic or catastrophic health issues can overwhelm a family and its finances. With today’s soaring medical costs, it doesn’t take long to drain a family’s bank account. When this happens, debts mount quickly, and soon the borrower is unable to meet the mortgage payment.
Death The death of a spouse, especially if he or she was the primary bread winner, can severely damage a family’s finances, especially if they bought too much house to begin with.
Divorce Divorce can be expensive, no surprise there. In some cases, when income drops dramatically, this requires that a jointly-owned home be sold.
Military Call Ups When soldiers are called up, they can suffer a big hit in terms of income, especially if they’re required for long tours of duty. Note: Lenders consider this a true hardship since it’s out of the control of the borrower and in service of the country.
Job Transfer In some cases, an employer transfers a borrower to another area and his or salary drops instead of increasing. If the owner is unable to sell or rent the property, then the hardship test is met.
Disability When a borrower suffers an injury or disease bad enough to cripple or eliminate income, then, obviously, he or she can’t meet the mortgage payments, and the property is taken back.
Job Loss When borrowers lose their jobs due to downsizing, company closings, or other factors, in many cases they aren’t able to meet mortgage payments because most haven’t saved enough to cover expenses.
Additional Factors Beyond the standards listed above, there are sometimes other factors that create a short sale situation.
One factor is that a property was bought at an inflated price. In the meantime, the market has dropped dramatically due to various economic conditions.
A second factor is that a property has been refinanced at, say, 125% of value, and that value was based on an over-inflated property appraisal report. Then, the area in which the home is located takes a severe economic blow, drastically dropping property values.
A third factor occurs when due to economic conditions (local or national) beyond the owner’s control, the home’s value has dropped to a value below the loan balance.
A fourth reason relates to the “as-is condition of the property. Sometimes, properties deteriorate almost beyond repair, making it impossible for the lender to put it back into resale condition.
A final factor prompting a short sale is when the purchase price of the home is more than the lender is able to sell the property for after foreclosure.
Short sales aren’t a terribly happy time for anyone for obvious reasons–except the knowledgeable investor. But, keep in mind that short sale opportunities tend to be infrequent when compared to other types of investments. Yes, you can pick up some great bargains, but you will definitely have to invest more “sweat equity
Key Point: Be completely familiar with the entire short sale process before engaging in this market.
Tags: Reality
