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Short Sale and Loan Modifications: What is a "Hardship?"

"Hardship" when negotiating a short sale or loan modification are circumstances that demonstrate a drop in income or an increase in expenses. One of the questions we are asked most frequently is "Do I qualify for a short sale or loan modification?" The answer depends on the homeowner's hardship.

The most common examples of hardships that the bank will accept as hardships include:

  • Death of a borrower (spouse, significant other, mortgagor, etc.)
  • Loss of job or decrease in hours
  • Divorce
  • Medical issue
  • Military Deployment

Voluntary decisions are typically unacceptable as hardships, like the decision to have kids, thus increasing expenses. Years ago, at the beginning of the Great Recession, I was on a panel discussion with a representative from Wells Fargo Bank. At that point, I was a newlywed but still had no kids. I lived in a two-bedroom, two-bathroom, one-car garage house that was just over 1,100 square feet. I asked the Wells Fargo rep while on the panel "Would it be a hardship if my wife got pregnant with triplets? Does the bank really expect 5 people, including 3 infants, to live in a two-bedroom 1,100 square foot house?". Wells Fargo's response was "that is not a hardship, because the decision to have kids is voluntary."

Most borrowers will say, "My house dropped in value and so I've lost a lot of money!"

First, you haven't lost money until you try to sell the house for a lower price. Until that point, the loss is a "paper-loss" and unless the property is investment or rental property the loss will never result in less dollars in your pocket while the house is owned. Second, to the extent the house has lost value for the homeowner, it has also lost value for the bank. Therefore, the bank has a "hardship" equal to the mortgagor's hardship; they've both lost value in the secured asset.

Obviously, there are more hardships available to borrowers considering a short sale or loan modification. The ones listed are the most common. We are willing to be creative in the hardship we describe to the bank, so long as our representations to the bank are truthful and not misleading.

For more information on short sales, loan modifications or hardships, please subscribe to the Yesner Law Podcast, on iTunes and Stitcher. If you prefer, please contact us to schedule a free initial consultation to discuss your options at 813-774-5737 or email me directly at shawn@yesnerlaw.com.

Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with short sales, loan modifications, deeds in lieu of foreclosure, foreclosure defense, asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, debt settlement, and landlord/tenant issues in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.

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