Should I stop making my mortgage payments? This is a question we are frequently asked by clients who are thinking about doing a short sale, and regrettably this is not a question we can directly answer as we can not advise you to breach your contractual agreement with your lender to pay back the money you borrowed to purchase your home. That said, what we can do is give you some scenarios that can happen if you stop making payments during a short sale and try to help you better understand your options so you can select the course that’s best for you.
Lender Qualifications
Homeowners should understand that the overwhelming majority of lenders will require a borrower be at least 60 days late before they will seriously consider their short sale request. FHA Requires borrowers be at least 31 days behind on their mortgage payments before they will consider a borrower for a short sale, HAFA requires borrowers be at least 60 days late.Furthermore, lenders will not typically authorize a short sale until the seller finds a buyer (if yours is a FHA Loan or if your lender is participating in the Home Affordable Foreclosure Alternative Program (HAFA) authorization can be granted prior to the identification of a buyer). But homeowners should realize that there is no guarantee that a lender will accept a short sale, and your lender is not required to let you sell via short sale.If you begin the short sale process and stop making your payments, should the short sale be denied and you cannot make up the back payments, you may find yourself involuntarily losing your home through foreclosure. Many short sellers enter the process with the thought that if the lender won’t approve their short sale, they are prepared to let the property go. That said, homeowners should realize that they can allow their payments to go 60 days late and then resume their payments, or begin making every other payment if they so desire.
Reasons To Stop Making Payments During A Short Sale
You may not have a choice in the matter. If you don’t have the money to make payments then you can’t make payments. Plain and simple. Others decide to not make payments by choice, and here are their explanations:
To save money for a move. It’s no secret that many homeowners are underwater and feel they need to get out from under their current situation. They will stop making payments during the short sale process to save up money to move when the short sale goes through.
Lenders rarely force you to make up the payments. In most situations during a short sale, all missed payments are forgiven, but not all the time. If your situation is so dire that it prevents you from making payments, or if you have other financial obligations to which you must allocated these funds you may consider not making payments. (Deficiency Judgments)
The short sale could be moved to a more critical time frame for approval. If you aren’t making payments, it’s obviously in the bank’s best interest to close on your short sale as soon as possible to further reduce their total losses. You don’t always have to be in default in order to be approved for a short sale, however, your request for a short sale is going to be taken much more seriously and receive higher priority if you are at least 60 days late on your payments.
If You Miss Payments You May Face Default
Short sales do not always get approved, some never find a buyer, while the overwhelming majority are mishandled by inexperienced real estate agents falsely claiming to be short sale specialist. If you make the mistake of hiring an inexperenced agent there is a very good chance that you may end up facing foreclosure if you stop making payments. Here are some of the drawbacks if you go into foreclosure:Although both short sales and foreclosure affect your credit, a foreclosure is much worse. After short selling a home, even if you miss payments, you can purchase a home again within as little as 2 years.If your home is lost to foreclosure you won™t be able to purchase home for 7-10+ years. Seven years if you don™t have any other credit issues, pay off all your delinquencies, and stay up to date on all future payments. Ten years or more if you face delinquencies or other credit issues related to your foreclosure.
Why You Might Keep Making Payments During Your Short Sale
If at all possible, making your payments, or resuming your payments during the short sale could be advantageous for a few reasons:
If your short sale doesn’t work out, you can cancel without any penalties. If the bank doesn’t accept an offer you submit, you don™t get an offer, or the bank denies your short sale for any other reason. You will be in a much better situation then if you had stopped making payments.
Making payments will protect your credit. Although your credit may not be the most important thing for you to worry about during financial hardship, your score will not reflect late payments. However, the bank will report your short sale as a settled account and this could have an affect on your credit. It™s called a Credit Factor Score #22, and it could drop your FICO. (How a Short Sale Affects Your Credit)
It is possible to purchase a new home directly following a short sale if you stay current. Both FHA and Fannie Mae have guidelines allowing a short sale seller who is current on payments to purchase a home directly following a short sale, if the borrower was never delinquent, complies with its “excessive prior mortgage delinquency policy,” and is not obligated to repay the short sale lender, including a deficiency judgment. Why would anyone do this?
If your home is worth dramatically less than what you paid for it, selling it short may be your only option. You may have to move for any number of reasons such as divorce, employment, or any number of other reasons. If your payments are up to date, you could purchase a new home when you move if you stay current. If you’re facing financial hardships, please do not avoid the situation. It will not go away, and a short sale may be the best option. If you can’t make your payments, you can still sell your home in a short sale and avoid foreclosure. Be sure to talk to a lawyer, an accountant, and seek out an experienced short sale agent to give you advice on your personal situation.
If you’re facing foreclosure you’re facing some very important decisions. We want you know you’re not alone and we are here to help with any questions you may have to assist you in making the best decisions for your situation. There is no charge for this service and we are happy to help! We offer confidential and professional real estate advice.
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley Columbus Delaware Downtown Dublin Gahanna Grandview Heights Granville Grove City Groveport Hilliard Lewis Center New Albany Pickerington Polaris Powell Upper Arlington Westerville Worthington
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