Tiffany Cloud's Arizona Blog

musings from 35 yr AZ resident and Realtor®

Reasons a Bank Might Agree to a Short Sale

In the last 3 years I have been confronted or involved with short sales for a variety of reasons.  While most people  understand The definition of a short sale.  [A short sale is making an arrangement with the lending institution(s) that has loaned you money on your property to accept a payoff for the property that is less than what is owed on that property.]  There is still a lot of mystery surrounding the reasons a bank might allow a homeowner to do such a thing.  What reasons make a short sale a viable option to the bank?  Can anyone do a short sale?  Why do banks allow some people to sell a home for less than what is owed and not others?

Below are some reasons a bank might allow a homeowner to complete a short sale:

1. Increase in Mortgage Payment

  • Interest Rate Adjustment – is the most common reason for a mortgage payment increase. 
  • Increase in taxes
  • Increase in Insurance

2.  Relocation

  • Military Service – See the Servicepersons Civil Relief Act (SCRA) for help in some cases, but for others an unexpected mandatory extension of active duty, change in assignment, etc can cause hardship.
  • Job Relocation – If you have negative equity in your home and are forced to relocate for a job.
  • Incarceration – It happens.

3.  Severe Illness or Death

  • Death of a Family Member or Spouse – Wage earner or not this can cause duress and turmoil in a family.
  • Severe Illness of a family member – Medical bills and time taken away from earning wages.

4.  Family Status Change

  • Divorce – Often involves a separation of assets and income.
  • Separation – Can involve dividing income and taking on a new household
  • New Family Member– This might be a newborn,  an adult child forced to move back home and that you must support financially, adult/senior parents that need financial aid or support.

5.  Loss of Employment,  Earnings or Benefits

  • Termination of Employment
  • Loss of benefits – Social Security, unemployment, child support, insurance payments, insurance coverage, etc…
  • Business Failure
  • Reduction of Income – Some employers are forcing employees to take a mandatory cut in wages or are not giving bonuses that were regular/customary.  A commission based employee or an independent contractor can also see a reduction in income.

6.  Excessive Debt

  • Credit Cards
  • Judgments
  • Tax Liens
  • Medical Bills

Now most banks are going to want to see if you qualify for a loan modification before they allow you to pursue a short sale.  Realize also that you will have to prove or DOCUMENT, with a paper trail, that you have one or more of the hardships mentioned above.  Short Sales can have legal and tax consequences that can vary from state to state so it’s always a good idea to consult an attorney and tax professional when deciding if a short sale is right for you.

Thanks for reading.

November 10, 2010 - Posted by | Arizona Housing Market

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