Short Sale Process and Making Mortgage Payments
Some people may wonder if they should stop making payments on a property if they are looking to get rid of it through a short sale. The answer to that question is not necessarily cut and dry. There are many lenders that will not approve a short sale unless the seller is already, or is about to be, in default on the loan as a result of an inescapable situation. This is especially true if the loan is through a federally subsidized program, where government assistance is available for those going through the short sale process. A seller cannot plan to default and expect to still qualify for federal help.
Nonetheless, this does not mean that you absolutely cannot qualify for a short sale if you are not in default or foreclosure. In fact, many short sales do get approved even when the seller has consistently kept up with mortgage payments. It is up to the lien holder to decide whether or not to accept a property for short sale. With the help of an agency specializing in short sales, the seller can submit the short sale for approval and see how the lender responds. If the lender requires the seller already be in default, they will usually let the seller know very quickly.
There have been many stories of people who have lived in their homes for years without making a payment on their mortgage, just going about their normal business while waiting for the proverbial axe to fall. In most instances, however, borrowers will receive a Notice of Default in 1-3 months after they stop making payments on their mortgage. The notice alerts the borrower to the fact that the lender has retained a local trustee and advises the borrower to pay the amount in arrears promptly or a trustee sale will be scheduled. If the borrower still does not make the account current, within 30 days the borrower will typically receive a Notice of Trustee Sale, stating the exact amount owed and the amount in arrears. The Notice of Trustee Sale, a matter of public record, also lets the borrower know the date and location of the trustee sale, generally 90 days from the date of the notice. It can take as little as 5-6 months for a property to be auctioned off once a loan has gone into default.
Another consideration when questioning “Should I Stop Making Payments for my short sale?” is that most lenders will report any late notices to the major credit bureaus immediately. While many people already expect their credit rating to take a hit just from going through the short sale process, it is also important to think about the additional impact that multiple late or missed payments will have.
When it comes down to it, most lenders are simply trying to regain as much of what they were expecting as possible. They are not necessarily focused on what the borrower’s total debt amount is, per se. They are more concerned with net proceeds. Most lenders will weigh all options to see where they can make the most money back, be it through a trustee sale, a short sale, or even retaining it as a bank-owned property.
The question, “Should I stop making payments?” is a difficult one to answer. While going into default on a property loan may seem like the only way to qualify for a short sale, it can also result in the borrower losing the property through foreclosure. If a short sale is denied, it is rare that a borrower is able to collect enough money to pay off the arrears and have the loan reinstated. For more information on our short sale process or mortgage payments during a short sale, contact Washington Short Sale Team and speak with an expert today (206) 852-7026.