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Stop Making Mortgage Payments During a Short Sale?

Stop Making Mortgage Payments During a Short Sale?

Stop making mortgage payments short sale

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.

For a complete understanding of the process from both a buyers and sellers perspective see Massachusetts Short Sales. A short sale is a great way to stop a Massachusetts foreclosure!

Short selling a Massachusetts homeAre 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 billgassett@remaxexec.com 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.

{ 103 comments… add one }

  • Bill Gassett February 12, 2013, 7:16 pm

    Betty – is the loan a Fannie Mae or Freddie Mac Loan? As of November 2012 you no longer need to be in default if your investor is Fannie or Freddie in order to do a short sale. The question still remains whether or not you will be able to complete one without a hardship. What could potentially happen is they let you do the short sale but they have you sign a promissory note for the remaining balance.

  • Janie C. March 31, 2013, 12:34 pm

    Often I find in Internet research that it’s a myth that you must stop making payments for a short sale. HOWEVER, in my case, I went through the “preapproval” process for short sale (proving hardship, etc.), then my realtor received this from the specialist at the bank handling the process: Please inform homeowner of the delinquency requirement per the pre-foreclosure guidelines.
    Loan must be delinquent by more than 30 days at the time of closing in order to complete a short sale. Loans current at the time of closing will not be eligible for short sale and will be subsequently removed.” So essentially the homeowner must be delinquent in the event an offer does come through during the short sale process.

  • Bill Gassett March 31, 2013, 9:42 pm

    Janie – There really are no across the board rules for short sales. Whether you should stop making mortgage payments depends on quite a few factors some of which are related to your own financial situation as well as the lender and/or investor you are working with. In some cases you need to stop making mortgage payments and in other cases that may not hold true. This is why it makes it really important to work with a professional in short sales who can give your proper advice and guidance.

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