Las Vegas, NV – August 25, 2011 – (RealEstateRama) — While short sales minimize damage to your credit versus foreclosure, the fact remains that the goal of every short sale is to walk away without the bank coming after you at some future date down the road. So why are some homeowners asked to pay substantial promissory notes in exchange for a short sale approval, while other homeowners are not asked to pay a promissory note at all? The answer can almost always be found by looking at the experience (or lack of experience) of the Real Estate Agent. There are certain factors which minimize hardship in the eyes of banks and bank Investors, and are essentially short sale deal killers. A Realtor experienced with short sales will be able to explain the banks perception of hardship and how it applies to your particular situation.
While our web site gives examples of how to write a perfect short sale hardship letter, it is important that before you begin writing, you have a strategy that outsmarts the bank. In order to achieve this, you will need to understand the banks position, and the weapons they are prepared to use against you. So how do you write a hardship letter that convinces the bank to approve your short sale, and release you from the remaining deficiency amount? Sun Tzu, author of “The Art of War” wrote that all battles are won or lost before the battle is ever fought. Additionally, Sun Tzu said, “The supreme importance in war is to attack the enemy’s strategy.”
Let’s face it; every homeowner in Nevada has a hardship. The value of our homes has depreciated by more than fifty percent. While we all can agree on this point, the banks do NOT consider this to be a legitimate hardship. If your strategy for writing a hardship letter is to talk about the economy, and depreciation in the housing market, then you will fail to convince the bank of anything. All the bank cares about is why YOU are unable to pay back the money YOU borrowed. The hardship letter should describe your specific circumstances and why the bank should release you from the contract which was signed when the home was purchased. Contract you say? What contract? Every homeowner signed a 20-50 page contract when they purchased their home. The contract was likely called something less intimidating, like loan documents, or loan paperwork, etc.; however, it was a contract that you signed. A contract can be defined as a legally enforcable written document. With a short sale, yo u are asking your bank to release you from your contractual obligation to pay back the amount you borrowed. The bank is under no obligation to release you from this contract. The worst thing you can do is take the attitude that the bank owes you a favor, or has somehow wronged you. If you think that the bank has an ethical or moral responsibility to help you, then you will not be effective in achieving your short sale goals.
So why do a short sale? If you can effectively convince the bank that you’re experiencing legitimate hardship, and will likely face foreclosure down the road, then the bank will forgive you and allow you to walk away from your financial obligation without penalty. This means that you will need to write a hardship letter that is persuasive, convincing and backed by some financial documentation which justifies your story. It is a human being who will read your hardship letter, not a computer. Humans have emotions, and empathy. (Yes, even bank employees) You need to write a letter of hardship that brings tears to the person who reads it.
Here are a few scenarios which are guaranteed to raise red flags in the eyes of your bank. Bank negotiators are trained to look for these items, and once a bank has determined that your short sale falls into one these “minimized hardship” categories, the chances of you being required to pay a promissory note increase exponentially.
1. Your Mortgage Payment is Current
Banks will not take you seriously if you have the ability to pay your mortgage. This does not constitute a valid hardship. Remember, a bank will only consider a short sale if they think that the chances of foreclosure are eminent. As long as you continue to make your monthly mortgage payment, the bank will not consider your short sale hardship to be legitimate. It is more beneficial for the bank to “sit back” and wait, to see if you will make another payment next month too. It is possible to obtain a short sale approval while continuing to make your mortgage payment, however, you WILL be expected to pay a very large promissory note or cash contribution at closing.
2. Collecting Rents and Failing to Pay Your Mortgage
Banks will cooperate with investors who are experiencing hardship, however, if you are collecting rent from a tenant and failing to make the monthly mortgage payment on your tenant occupied property, then this is the #1 Short Sale Deal Killer. Banks do NOT look favorably upon investors who are getting paid by a tenant, yet failing to honor their mortgage obligation. In fact, these types of investors are far more likely to be sued by their bank in a deficiency judgement lawsuit than anyone else. Non-owner occupied properties are eligible for short sale approval; however, it is important that investors understand the banks perspective of hardship. It makes no sense to continue collecting rent from a tenant, only to wind up being sued by your bank once the home forecloses. These types of investors will have a hard time convincing a judge that they acted in good faith.
3. Recent Purchases on Your Bank Statements or Inquiries on Your Credit Report
When you apply for a short sale, the first thing the bank will do is pull your credit. (Yes, they have the right) They will use your credit report and your bank statements to determine the extent of your hardship. If your bank statements show recent electronics purchases at Best Buy, or show purchases made on a recent vacation to Maui, or if your credit report shows recent credit inquries at car dealerships, etc., then you are going to have a much harder time convincing your bank that a hardship exists. Banks are very smart. They intentionally make the short sale process complicated, to sort out the people with actual hardships from the people who may still have the ability to make their mortgage payment.
A Real Estate agent who is experienced with short sales can help you prepare a workout package which conforms to the banks definition of legitimate hardship. You do NOT need to be poor or broke to qualify for a short sale. Actor, Nicolas Cage is a multi-millionaire, yet last year, he successfully did a short sale on his Las Vegas home. Hardship is not solely determined by how much money a person earns…it also factors in a person’s expenses, especially if expenses have increased and income has decreased.
The Myers Team is Nevada’s #1 Short Sale Team. In 2010, they sold more short sale homes than any Realtor, Broker or Attorney in Nevada. Please visit our short sale web sites by clicking the following link: Lois Lee Greer at http://www.lasvegasluxuryshortsales.com and http://www.nevadashortsaleinfo.com
About Lois Lee Greer
I am both a Listing Agent and a Buyer’s Representative for The Myers Team. Born and raised in Texas, I have called Las Vegas home since 2003. “I love Las Vegas. It’s like living in a big city with a little town feel.” I have been in sales for over 20 years, and became a Certified Distressed Property Expert (CDPE) in 2009. Before selling Real Estate, I was a salesperson for several luxury companies including Mercedes Benz, Lexus, and Neiman Marcus. Additionally, I have owned and ran my own business for over 11 years.