Proving Hardship: How to Qualify for a Short Sale

A short sale can sometimes be the best means of avoiding foreclosure when a homeowner is feeling swamped by mortgage debt. However, many homeowners are struggling at present—especially in states such as Nevada, Arizona, and California, which have particularly high default rates—but not everyone will qualify for a short sale.

Short sale applicants must prove “significant hardship.” This means demonstrating to the bank that you are experiencing legitimate financial hardship, to the extent that mortgage payments can no longer be met. This can mean anything from an increase in legitimate expenses to a decrease in income. Proving such hardship is the most critical stage in the short sale application process.

Understanding the Application Process

When applying for a short sale, there are a few elements that are important to remember. First and foremost, the bank will examine the applicant’s documents, looking for signs of a change in their financial status. This means that the bank will examine your pay stubs, tax returns, W-2s, and bank statements from the time you first requested the loan, as well as more recent versions. This allows the bank to determine the extent and cause of your declining financial status.

Perhaps even more important, however, is the hardship letter. This document is an opportunity for the applicant to plead their case to the bank. This does not mean an emotional account of struggle and triumph; rather, the letter ought to include a factual description of the situation that led to the present financial condition. All claims ought to be backed up with proof, in the form of medical bills, employee layoff letters, or proof of a reduction in working hours. Military service or marital difficulties may also be used as evidence of hardship, though once again, proof must be provided.