Will my bank allow me to do a short sale if I’m current on my mortgage payments?
Not all short sales involve sellers who are delinquent on their mortgage. Some banks will consider a short sale for a person who is current on their mortgage if there is a legitimate hardship and a documented decline in property values.
Some banks have a policy whereby they will only consider a short sale if the borrower is behind on their payments. This policy can be viewed as absurd, especially if property values have dropped dramatically in the area. On the other hand, why would a creditor want to consider taking less money when someone keeps paying them per their original loan agreement?
A technique used by some people who want to minimize their damage to credit while also having a short sale approved is to deliberately pay their mortgage late, but no more than 29 days late. When a bank receives their mortgage payment 30 or more days late, they inform the credit bureaus. For someone who is looking to borrow money, especially via a mortgage loan, in the next two years, a single instance of being 30 days late can prevent them from obtaining the loan they desire.
A person could choose to not pay their mortgage on time, which after a few days (typically the 6th of the month or later) causes the bank to treat the loan differently than if it were paid on time. The bank may send the file to their loss mitigation department once the loan is delinquent. The bank will call the borrower, and may send mail, offering options and assistance. One of the options may be a short sale. Of course, the technique to prevent a 30-day report to the credit bureaus involves the borrower paying their mortgage plus the late fee just before the end of the month. That way the loan never goes 30 days behind, but the bank starts offering options to the borrower. That action may trigger the bank to consider a short sale or loan modification.
Some banks unfortunately have the policy whereby the borrower must be at least three months behind before they’ll consider a short sale. If that’s the case, then the homeowner must make a decision whether they should stop paying the mortgage. In some cases, it may be the best option for a person to stop paying the mortgage. That is a decision that should be made after consulting various professionals and weighing the pros and cons.
The first thing one should do is call their bank to express difficulty in paying the mortgage or selling the house. Many banks will mail a short sale package to the borrower if asked. Some banks will reveal their precise policy on how to qualify for a short sale, while other banks will provide nebulous answers.