they are asking for financials in order to approve a short saleYou haven't posted in a long time. I don't understand your question, you are going to have to give details, or no one will reply.
Is it a loan mod scenario or a money purchase? You need to provide details, especially since you're asking about the legality of a situation.
If you don't post details, whoever responds may give you the wrong opinion.
Right. So in hardship letter will state no income.Well, then I'll give you the wrong information (or the do what's best for you information). Do not give them crap, from the crap store.
Don't let them know your business. If they are forcing a short sale, you don't owe them anything. You say you have no income, worst that can happen is they don't approve a short sale. You're not breaking any laws. Let them pound sand, my friend. By doing a short sale, you're doing them a favor, not vice versa. They could care less about you. It's all about the money.