What qualifies as hardship in a short sale? I get this question fairly often, and it should be addressed. First, I’ll tell you what does not qualify as hardship, and that is simply being underwater. If you owe more than you are worth, being upside down alone is not adequate hardship to get a short sale approved. That is only half the equation. There has to be a financial hardship.
In every case of hardship I have ever seen, a loss of income has been involved. It could be unemployment, divorce, being laid off, the failure of a business, or any of a hundred other things, but a loss or decrease of income is absolutely hardship. When your expenses remain the same and your income goes down or disappears, you have a case for hardship. You could be a ditch digger paying a $500 per month mortgage or a brain surgeon paying $10,000 per month. If you lose income, hardship is not hard to prove. In rare cases, income has remained the same but the payment has adjusted up, but the mathematical outcome, namely a deficit, is the same.
That is as basic a yardstick as I can find. I’d be surprised to find a more common or less complicated theme.
Loss of income is almost always a case for hardship.
J. Philip Faranda
New York Short Sale Team 
That does sum it up pretty well. Keep in mind that one main loss of income that does not qualify as a hardship is quitting a job.
I think you hit it right on the money… Loss of income due to loss of ones job is a big factor in a bank allowing a short sale. I have met many potential clients who have just over extended themselves with their mortgages and home investments. They are still employed and either making the same or more income. The bank looks at them as still being able to make payments. They may be in a financial pickle and are finding it difficult to make those payments but this does not always justify a short sale.
This is a good post Philip. So many people don’t understand what a hardship is in a short sale. Just because you lost value in your home does not qualify you for a hardship…
It seems to be a no brainer. You have a decrease in your income, therefore you can not pay the mortgage as it currently stands. You need an adjustment or a modification.
Why does a short take so long? Doesn’t the bank need the money?
My take on the situation is that the bank prefers to push the deal into foreclosure because then they can utilize their insurance policy. A policy that no doubt the homeowner paid for.