Is this a legitimate hardship?

[KungFuJoe]

A couple reps I've spoken to say I have a VERY legitimate hardship case, but I always take what they say with a grain of salt because they make their money by doing short sales, so of course, they aren't going to tell me that I have no chance. But based on what people here have seen or done regarding hardships, I'm curious if I have what banks would consider a legitimate hardship. I know it all depends on the lender, but still...just looking for opinions.

Bought home in Orange County, CA in 2004 for 510K. Currently home is probably around 340K. About 2-3 years ago, my wife lost her job. She tried looking for a few months but nothing was available so she decided to start her own company. The start up costs and lack of incoming revenue from her side (she was previously making about 60K a year) caused us to incur about 75K in credit debt (about half due to company start up, other half just trying to make ends meet). That's basically our primary hardship...about 50-60K in CC debt that we've been slowly trying to chip away at. I also had borrowed 50K from my father to help out as well...but that occured many years prior and was assistance to help buy our first home, but I still owe him about 30K. Economically, we were hurting pretty bad for about 2 years, but never missed or was late on a payment. Fast forward to today...things are better economically. I make more money and my wife's business is stable. But because of rising costs, feeding a family of 5, and credit card debt that just won't go away, we basically live check to check. I have no savings and the only time I have more than 3K in the checking account is because we just got paid but it's soon gone with the mortgage/bills, etc. I have a 401K and IRA that is probably worth 15K combined. My mother's health has declined and I pay about 200-300 a month to help her out because her social security isn't enough.

I've listed them out in a hardship letter that's going to be submitted to the bank. As I mentioned earlier, my agent thinks we have a very good case, but admits that me not being willing to be late will delay the process. If it weren't for my wife's business, I probably would have been willing to miss a payment or three, but because she relies on good credit to run her business (and the home is in both our names) that's not possible.

I do want to add that I've refinanced twice (first was to get out of my IO loan and into a 30 year fixed, which caused my payments to go UP) and second was via HARP when it first came out.

[Martinique]

My hardship was not nearly as bad as yours and my short sale was approved quickly.
I was encouraged by several people including my agent to miss a payment, which I did. I've heard that it's possible to get a short sale approved without missing a payment but I thought they would give my case priority if I stopped paying.

What we did was list the house with the real estate agent, received several offers and chose the one to submit to the lender along with the short sale request. You could try to ask for the short sale and see if it works without missing a payment. If it's too slow, then stop paying :-). Best of luck to you.

[KungFuJoe]

If you don't mind further questions...

How long did you wait before deciding to miss a payment?
How long did you have to wait (total) from the time you submitted initial paperwork to the close of the SS?
How many payments did you have to miss? Did you just miss one payment, then continue to pay the rest, or did you stop paying outright?
What effect did it have on your FICO?

[Martinique]

Kungfu
I put the house for sale and then missed one payment. Got letter of approval in less than 4 weeks. Missed the second payment.Escrow is closing in 2 weeks. I have not checked my FICO score yet. It will be a surprise ! Looking back, I think I should have considered not making payments but our agent thought we'd have a better chance if we stopped paying. Well, she did not say it openly but it was pretty clear to us that's what she meant. I would love to be in position to buy another home right away but it's not going to happen...hopefully in 2 years or less, I hope. My credit was excellent before I missed the payments.

[KungFuJoe]

My agent did tell me it will make it a lot harder and take longer to get approved if I keep paying. It makes sense...why would the banks let you short sell when they continue to get your check every month. But she said it's possible with a very strong hardship. I'm curious to see how much your FICO gets hit by missing one or two payments. Does it get worse with every payment you miss or does it get slashed by 200pts from the very first time and the rest don't matter?

[Martinique]

Kunfu
I'll let you know my FICO score when I find out. I've read on several boards that some people had their FICO score almost back to pre-short sale in a year. That would be great.
If you can afford to wait and keep making your payments, why not list your house for sale and once you get a serious offer, submit it to the lender along with your short sale request. By the way, I also got the HAFA $3,000 approved, so I should get this at the close of escrow.

[KungFuJoe]

I'm working with a real estate agent and short sale mitigator currently. I'm getting my home listed on MLS this weekend (he is coming by to take photos). Also being submitted for HAFA consideration.

The one positive I have is that I believe my home will be easy to sell. The comps are low and even though my home is on the small side, it has a good layout, lots of upgrades (done by previous owner) and a very nice backyard, pool, spa, built in bbq, fire pit, etc that was absolutely great for parties. Real estate agent says he already has a couple people who want to see the home. I'm hoping that being able to lots of offers will make it easier to short sell.

[Evan Bedard]

Martinique has great advice about your situation. It is true that it is possible to achieve a short sale without missing any payments and we have members here who have been successful doing so. If you are able to complete the short sale while current the damage to your credit will be very minimal (probably about 40-80 point drop) and you may qualify for a new home loan right away without waiting 2+ years from closing..

[Martinique]

I'm working with a real estate agent and short sale mitigator currently. I'm getting my home listed on MLS this weekend (he is coming by to take photos). Also being submitted for HAFA consideration.

The one positive I have is that I believe my home will be easy to sell. The comps are low and even though my home is on the small side, it has a good layout, lots of upgrades (done by previous owner) and a very nice backyard, pool, spa, built in bbq, fire pit, etc that was absolutely great for parties. Real estate agent says he already has a couple people who want to see the home. I'm hoping that being able to lots of offers will make it easier to short sell.

Same here. Our house got an offer for full price on the very first day we listed it. We had an open house on the week-end and received a total of 12 offers., 3 of them cash offers. We tried to pick the one that would be most appealing to the lender and to us: cash offer and the willingness of the buyer to wait for 3 months and put a substantial amount in escrow. Our agent did the negotiations. I wish you the same favorable results.

[Evan Bedard]

Same here. Our house got an offer for full price on the very first day we listed it. We had an open house on the week-end and received a total of 12 offers., 3 of them cash offers. We tried to pick the one that would be most appealing to the lender and to us: cash offer and the willingness of the buyer to wait for 3 months and put a substantial amount in escrow. Our agent did the negotiations. I wish you the same favorable results.

Wow that is great you received 12 offers at the open house! It is hard for some people to receive a single offer even after having the property on the market for months.. But of course that has a lot to do with the area in which you are trying to sell..

[Martinique]

Evan, my agent said the house should be priced "agressively" to generate multiple offers. Plus the fact that it was very well-maintained and in a nice neighborhood. It almost generated a price war because the listing price was on the low side. We got an offer for 52K over the listing price. I think the agent's strategy worked.

[Evan Bedard]

It definitely sounds like it worked better than expected! It is always beneficial to have an agent who is experienced with the short sale process..

[KungFuJoe]

We listed our home through an agent last week. In the first day of showing the home, we got 3 offers. Did an open house yesterday and the agent said it was one of the busiest he's had in a long time. So far so good. One thing concerns me. He is submitting the very first offer (which is actually LOWER then asking (315k vs 325k)) to the bank along with the short sale application. I didn't question him about it because he said he wanted to get the ball rolling ASAP but after thinking about it for a while I thought maybe this wasn't the best course of action. I thought it would be best to compare all the offers maybe get some counter offers and take the best possible and go to the bank with that. I mentioned this to him. I was also a bit concerned because that initial offer (which is getting submitted) was from his brother in law and was afraid he was trying to help them out at my expense. I do have to add that my realtor is a very nice guy, has been very honest and up front so far, and has been doing this for a LONG time and seems to know what he's doing.

What he responded with was that he wanted room to negotiate with the bank so he was starting low and keeping other offers as back up offers in case the bank came back with a higher number. He didn't want to start high in case the bank came back with an even higher number and people would walk away. As for his brother in law, he said that he was going with him because he knows his financial situation, they loved the house and would be willing to wait out the long short sale process which he wouldn't know for sure other buyers would be willing to do the same.

It sounds fair enough, but wanted to know if any of this sounds fishy.

[Martinique]

Kungfu
It makes sense to submit the best offer, not necessarily the highest price. Our agent did a spreadsheet comparing all offers. We picked a cash over and kept the highest priced offer just in case the bank said they wanted more money. All our offers were at or above listing price. Now, regarding the agent's brother-in-law: there is something called "arm's length" affidvit that we had to sign, saying we had no relationship at all with the buyers. I don't know if this would also apply to the agent. You may want to research it. You can start here:
Arms Length - What is an Arms Length Affidavit for a Short Sale
Best of luck to you

[Martinique]

Kungfu
Another thing my agent did was to ask the potential buyer to immediately open escrow with a substantial amount of $$ to show how serious they were. On the purchase offer, it was also written that they would wait until a specific date (4 months in our case) for the lender to give us a response.

[KungFuJoe]

Kungfu
Another thing my agent did was to ask the potential buyer to immediately open escrow with a substantial amount of $$ to show how serious they were. On the purchase offer, it was also written that they would wait until a specific date (4 months in our case) for the lender to give us a response.

Thanks for the info. I'll talk to my agent and ask about details on the offers.

[Martinique]

Thanks for the info. I'll talk to my agent and ask about details on the offers.

Kunfu, our agent initially wanted to submit the first offer but we said we wanted to wait until the open house. The first offer came in before it was even in multiple listing. Even with an experienced agent, it's good to keep an eye on what's going on. We felt better about having several offers, just in case the first one fell through. We're closing this week. Not looking forward to moving but I am happy this short sale went very smoothly. I wish you the same. My only regret is that we did not try to short sale without missing any payments. I hope it works for you. We'll see how much of a hit we get on our FICO score.

[KungFuJoe]

Glad your ordeal is over. This is actually pretty excruciating. My agent submitted the offer to the bank late last week and I know it could be months before we even hear anything, but I'm literally waiting day by day resisting the urge to call my agent. If you don't mind, I would be curious to know your FICO hit. I believe you missed two payments, iirc. Although I want to ss without missing a payment, I'm trying to keep all my options open because I really am "stuck" here.

[Martinique]

My agent followed up with the lender at least once a week. One week after I submitted the short sale, the lender arranged for a BPO. The lender also assigned the case to a negotiator after the "processor" made sure all the papers were in order. I don't know if yours will be slower because you're not missing any payments. I did not know that we could short sale our house without missing payments but apparently, it's being done. I found this out on this site.

[KungFuJoe]

My agent followed up with the lender at least once a week. One week after I submitted the short sale, the lender arranged for a BPO. The lender also assigned the case to a negotiator after the "processor" made sure all the papers were in order. I don't know if yours will be slower because you're not missing any payments. I did not know that we could short sale our house without missing payments but apparently, it's being done. I found this out on this site.

Yeah, definitely being done and when my agent first mentioned it, I thought he was blowing smoke trying to get me to work with him, but later found out he was right. It IS harder to prove a hardship and banks seem to be less willing to work with you if you are paying on time, but it can be done. Honestly, if it wasn't for my wife's business (of which she requires credit cards and very good credit), I would be willing to take a large FICO hit to get the SS done, but it just doesn't appear to be an option.

[Evan Bedard]

Glad your ordeal is over. This is actually pretty excruciating. My agent submitted the offer to the bank late last week and I know it could be months before we even hear anything, but I'm literally waiting day by day resisting the urge to call my agent. If you don't mind, I would be curious to know your FICO hit. I believe you missed two payments, iirc. Although I want to ss without missing a payment, I'm trying to keep all my options open because I really am "stuck" here.

Unfortunately, if you miss payments prior to completing the SS the damages to ones credit rating can be very similar to that of a foreclosure, and could result in a drop of 150-200+ points..

[KungFuJoe]

I got a letter from gmac stating that if the short sale goes through they will report it to the credit bureaus as "paid and settled for less than the total amount due.". I believe this is standard affair and assuming I haven't missed or been late on a payment has anyone else had a similar credit reporting and how did it affect your fico?

[gintn]

I am on the same boat as KFJ. Could not afford the rental property anymore. 1st loan is with GreenTree and 2nd is BAC. I owe 315K and the house is listed for 135K. i got the offer same day it was posted in MLS. Agent sent out the paper today. I am not sure how it long it will take. And I am in dilemma whether to keep making mortgage payment or not.

If short sale doesn't go thru, will I qualify for HAMP? I already got denied once since the LTV is more than 150%.

[itshuman]

Hi Evan,
We are in similar situation. I

1st Loan : Buyer's Offer + Agent Comission ( so doing normal sale here..)
2nd Loan: BOA (approved for 6K, received today)

This is without missign any payments. so in short I'll be able to do short sale with only 2nd being short and without missing any payments. Before I say yes, want to understand will I be take any loan in future and how. Many forums replies/comment suggest that it's possilbe right after SS, if you have not missed any payment. Waht I don't know how and any known lenders to do this?
I spoke to few mortgage brokers and I got straight answer "NO" wait for 2 yrs.. I'm also thinkign if i can talk to my BOA if they can settle it.. then I may not even sell it. Please help.

Martinique has great advice about your situation. It is true that it is possible to achieve a short sale without missing any payments and we have members here who have been successful doing so. If you are able to complete the short sale while current the damage to your credit will be very minimal (probably about 40-80 point drop) and you may qualify for a new home loan right away without waiting 2+ years from closing..

[Cat Damiano]

Hi Evan,
We are in similar situation. I

1st Loan : Buyer's Offer + Agent Comission ( so doing normal sale here..)
2nd Loan: BOA (approved for 6K, received today)

This is without missign any payments. so in short I'll be able to do short sale with only 2nd being short and without missing any payments. Before I say yes, want to understand will I be take any loan in future and how. Many forums replies/comment suggest that it's possilbe right after SS, if you have not missed any payment. Waht I don't know how and any known lenders to do this?
I spoke to few mortgage brokers and I got straight answer "NO" wait for 2 yrs.. I'm also thinkign if i can talk to my BOA if they can settle it.. then I may not even sell it. Please help.

I answered your questions here in your thread;

Short Sale or Settlement