A hardship can be defined as: A material change in the financial situation of a homeowner that is or will affect their ability to pay their mortgage.
You must have a hardship in order to qualify for a short sale. Examples of acceptable financial hardships are:
- Payment Increase or Mortgage Adjustment
- Loss of Job
- Business Failure
- Damage to Property
- Death of a Spouse
- Death of family members
- Severe Illness
- Mandatory Job Relocation
- Military Service
- Insurance or Tax Increase
- Reduced Income
- Medical Bills
- Too much debt
Payment Increase or Mortgage Adjustment
This is the single largest reason for distress in today’s market. Although mortgages increase on a schedule and homeowners know they are coming, many do not do anything until it is too late or even worse; do not think they have any options.
Loss of Job
When an individual loses employment the loss of income is most often immediate and very quickly financial distress can occur and seem insurmountable.
For a small business owner, the devastation of a business failure is often followed by the inability to pay mortgage payments and the loss of their home.
Damage to Property
Many times insurance companies do not cover the full amount of damage to a property and homeowners are unable to make repairs. Some homeowners have to use insurance funds to survive and find new living arrangements.
Death of a Spouse
The death of a spouse is devastating to a family and if the person was also one of or the only wage earner, this will almost always cause financial distress.
Death of family members
The death of a family member regardless if they are a wage earner or not can throw a family into emotional and financial turmoil.
Severe illness and the medical bills involved along with the time that it takes away from a family’s productivity can cause bills to be missed and homes to go into distress.
Rarely does someone think of an inheritance as a means for distress however heirs are left to pay mortgage bills, utilities and maintenance that they did not expect. Imagine a son who makes $60,000 a year whose parents pass away and leave him with a $700,000 mortgage and payment on a $1.5 million property. He will quickly need to find a payment solution (which there may not be) or liquidate the property and satisfy the mortgage. As you can see, even properties with significant equity can be in danger of being lost to foreclosure if a solution is not implemented.
It goes without saying that divorce is one of the most common reasons for financial distress in the real estate market.
When a couple decides to separate even though they are not actually divorcing, the cost of maintaining two households can cause the loss of a primary residence.
Homeowners do not always have control over where they live; many relocations are necessities not choices. This can quickly cause unexpected distress since very few homeowners can support two households for any significant length of time.
Except for the relief provided in very specific situations by the Service members Civil Relief Act (SCRA), military service can lead to unexpected financial issues. Service members who have had their periods of active duty extended are suffering a tremendous amount of financial pressure.
Insurance or Tax Increase
For many homeowners just the increase in taxes on an annual basis or the increase of an insurance payment can cause a family to lose a home or go into financial distress.
If a person is in a commission based business (like most sales jobs) and the economy suffers, often times their income suffers. Also many businesses are reducing employee compensations to make up for lost revenues that corporations have suffered.
The high cost of medical treatment can quickly cause a family to go into financial distress. Especially because it usually is accompanied by time off from work.
Too much debt
For a family with credit card debt, even minor increases in their interest rates can make the difference between paying all their bills and missing payments.
If an individual or family member is incarcerated a financial distress can occur.