I Owe Twice What My Home is Worth — Will My Bank Still Approve My Short Sale?

Many homeowners who are severely underwater ask this question. Generally, the reason a bank accepts a short sale is due to the hardship of the seller. It is not because the short sale offer is close to or far from the loan balance.  Once hardship is established, the issue becomes the market value of the asset.  If market value is half — market value is half — there is no way around that.  But, it is your hardship that will qualify you for a short sale — not how much the bank is going to lose.

Now, there are other factors that can affect whether the short sale will be approved, like the presence of mortgage insurance, second lien holder demands, or a bad valuation; however the threshold issue will be hardship.  Hardship is an issue that is discussed with much vigor among short sale agents and bank negotiators.  However, despite what some would suggest, there is no clear cut answer.  There are different standards among banks, investors, and servicers, and we are in a different type of envronment as well — the economy is down and mortgage lenders and investment bankers engaged in practices that caused this economic storm.

Some short sale agents argue that simply being severely underwater is not sufficient to qualify you for a short sale.  I do not agree.  Some short sale agents say that even if your home is worth half of what you paid, that if you can “afford” the monthly payment you must continue to pay.  Even if those monthly payments are interest only and the rate is variable.  I do not agree with that either.

Often people think they can afford a payment, but they really can’t.  Many, if not most of my short sale sellers end up in my office after their accountant or CPA has advised them to do a short sale on their home or rental property.  Their financial advisor understands that they really can’t afford to keep doing what they are doing, even if they don’t.  Before listing as a short sale, I encourage potential clients to discuss these issues with their attorney and tax advisor, if they have not already.  After those consultations, they often discover that they do have an argument for hardship that they can present to the lender before going the route of foreclosure or bankruptcy.  The bank can then say yes or no.

If you are considering a short sale of your Santa Maria, Orcutt, Nipomo, or Arroyo Grande home, you should seek out an experienced short sale agent to guide you through this process.  If you would like a short sale consultation, please call my office to schedule a meeting or a telephone consultation at (805) 938-9950.  You can also find information on my website: www.SantaMariaShortSales.com.

Tni LeBlanc is an independent Real Estate Broker, Attorney, Short Sale Agent and Certified Distressed Property Expert (CDPE) serving the Santa Maria, Orcutt and Five Cities area of the Central Coast of California.

*Nothing in this article is intended to solicit listings currently under contract with another broker.  This article offers no legal or tax advice.  Those considering a short sale are advised to consult with their own attorney for legal advice, and their tax professional for tax advice prior to entering into a short sale listing agreement.  Mint Properties is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.