Let’s be clear that loss of equity is not a financial hardship. Millions of Americans pay for a car every single month that depreciated in value the moment they drove the car off of the sales lot, yet they do not renegotiate the term of the loan or abandon the car. We all have possessions that today aren’t worth what we agreed to pay for them but we cherish, value, and keep these possessions. I receive numerous phone calls from homeowners in financial distress seeking solutions to their problems. One of the first questions I ask homeowners is “What has happened since the time you purchased your home that you can no longer afford it”? We have to define a financial hardship in order to be successful in closing a short sale, just because a property depreciated in value doesn’t mean the homeowner is suffering from a financial hardship.
Life sometimes brings unexpected changes that can result in financial hardship. Examples include job loss, divorce, health related issues, or death of a spouse. Hardship will create a loss in income and/ or an increase in expenses that makes the home unaffordable. Hardship must be documented and supported by relevant documentation. I use the Hardship Affidavit on Form 710 for all of my short sales because it provides a list of hardship and acceptable documentation to support the hardship that is easy to understand and convey to the homeowner.
A homeowner’s hardship is presented in a letter personally written by the homeowner or their attorney and supported by hardship documentation.
Fannie Mae does allow a servicer to approve a borrower for a short sale without verifying the borrower’s documented hardship if the borrower is 90 days in arrears on their mortgage and their FICO score is less than 620 at the time of evaluation.
Freddie Mac will consider a short sale if the borrower does not have an eligible hardship for the following reasons:
- Property ownership has been jeopardized.
- There is pending litigation that affects the property and could prohibit a successful foreclosure sale.
- The property has deteriorated and as a result the value has declined.
Prior to taking a short sale listing it is pertinent that hardship has been defined or you are working within the special rules and regulations of Fannie Mae or Freddie Mac.
Marki Lemons will be speaking at ERA IBC 2013 in Austin, TX March 21-24, 2013. Register here.
Marki Lemons
With over a decade of experience working in real estate, Marki Lemons has established herself as a leading expert in the foreclosure and short sale industry. In a market experiencing near record numbers of short sales and foreclosures, Marki has used her dynamic, professional attitude and vast experience to become known as the “Queen of Foreclosures.”
By consistently offering sound industry analysis and professional guidance, Marki’s expertise is regularly featured in The Chicago Tribune, Chicago Agent Magazine, Chicago REALTOR® Magazine, and has also been included on CBS News Chicago.
Not only is Marki an exceptional agent, but she is also a dedicated educator. In 2010 Marki was named the Illinois Real Estate Educator of the Year. Marki began her career in education in 1993 and currently works as a speaker teaching the Short Sale Foreclosure Resource: SFR, Broker Price Opinion Resource: BPOR, Home Affordable Foreclosure Alternative: HAFA, and Short Sale Foreclosures & Social Media: SSFSM. In addition, Marki is certified to teach courses for CRB, ePRO, REBAC and The Women’s Council of REALTORS®.
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