The question of whether a home owner should stop making mortgage payments during a short sale is a popular topic for sure!
There are a lot of myths floating around when it comes to successfully doing a Real Estate short sale. One of the more prominent untruths is the fact that you need to be in default with your lender in order to do a short sale.
On numerous occasions both online and around the water cooler in the office, I have heard other Realtors telling their clients that they need to be behind in their mortgage payments in order to complete a short sale. This is flat out WRONG and could have negative consequences for the seller if they listen to that advice.
One of the most difficult questions a client or customer can ask me is whether or not they should stop making mortgage payments. While I am well versed in short sales, a lawyer I am not and therefore should not be handing out legal advice. When I am asked this question more often than not I will have them speak with the lawyer I work with on all of my short sales.
If you are thinking you may need to do a short sale here are some things to consider regarding whether or not it makes sense for you to make mortgage payments or not:
Reasons to Stop Making Your Mortgage Payments During a Short Sale
Although you do not need to be in default in order to do a short sale most lenders will act quicker on a file that is delinquent. It makes perfect sense. Why would a bank give priority to someone who is current on their loan?
Some sellers just don’t have a choice, as financial hardship has forced them to put all their money towards essentials such a food and heat.
The money being put toward the mortgage could be going towards building savings to be able to pay future rent and other living expenses instead.
Lenders may be less inclined to go after a seller if they are not making mortgage payments. It is obviously difficult to get blood out of a stone and some banks may not want to expend the energy chasing down a deficiency.
Biggest Drawbacks of Going Into Default
There will be an impact to your credit score. Whether you go through a short sale or let the home go to foreclosure there will be an impact on your credit. Every circumstance is different but speaking in generalities your credit score could take a whack of around 200-300 points in a foreclosure.
A short sale has the potential to be around the same, although I have seen in quite a few circumstances where the drop was closer to 150 -180 points.
You will not be able to buy another home for two years. For a Fannie Mae backed loan you will more than likely not be able to get a loan for two years.
End up in foreclosure. If you are not making payments during the short sale process and the bank rejects the sale you could end up losing the home to foreclosure. This obviously would be the case anyways if you did not have the ability to pay the mortgage.
The case for making mortgage payments during a short sale
If you can financially afford to make your mortgage payments in a short sale, you may want to for the following reasons:
You more than likely will be able to get an FHA loan if you were not late on any of your mortgage payments. According to Fannie Mae guidelines issued in August of 2008, you are also supposed to be able to get a conventional loan if you do not have to pay back the lender the “short fall” and did not become delinquent during the short sale. While this is supposed to be the case most lenders say otherwise.
Making your payments does help protect your credit to some extent although the lender can still report your short sale which will effect your FICO score. This is recognized as Credit Score Factor Code #22.
If the home does not sell or the bank rejects the short sale you will still be current and not in jeopardy of losing the home.
If you have not fallen behind in your mortgage payments it may make the whole process easier to cope with emotionally. There are many that get worked up from the fact that they are failing to payback an obligation they signed up for.
Are you needing to short sale a home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holliston, Hopedale, Hopkinton, Medway, Mendon, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, or Douglas? Get in touch I would love to interview for the chance to represent your best interests.
I am successfully completing short sales through out the Metrowest area. So far, knock on wood, I have a 100% success rate for short sale approval. If you are not in the Metrowest area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales.
About the author: The above Real Estate information on stop paying your mortgage during a short sale was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.