This one comes up a lot! The answer of course, it depends. But let me premise this by saying I am not licensed to give legal advice or advise you to stop making payments, so please consult an attorney to analyze your situation. With that out of the way, let’s talk about what has been seen in the industry lately.
For the record, we have been successful in closing short sales where there have been NO mortgage lates but that has far been the exception rather than the rule, and is becoming less common. The fact is, there is rarely a free lunch, and banks are unlikely to allow a homeowner to do a short sale without requiring some loss to the homeowner such as mortgage lates on their credit. They are, after all, wanting to see some sort of hardship which impacts the ability for the homeowner to make the payments, which is the basis for the short sale itself.
The policy of requiring mortgage lates for a short sale is up to the investor of the loan, and it is important to understand the difference between the investor of the loan and the servicer. The investor of the loan is the company, group, or other that owns the loan itself. They set the guidelines of how it is sold, transferred, or settled. The servicer on the other hand, is the company that you write the check to each month when you make your mortgage payment. They are companies such as Bank of America, Chase, Wells Fargo, etc. These companies in some cases own the loan, but in most cases actually just service the loan for the investor and must get investor approval before making any short sale decisions. Most investors these days are requiring the short sale seller to be at least 30 days late on their loan in order for the short sale to be approved. This is true with most Fannie Mae owned loans. The newer HAFA government short sale program is following suit, requiring at least 30 days late also before considering a pre-approved HAFA short sale.
Some homeowners try to not accrue mortgage lates in an effort to complete their short sale without hurting their credit, but the reality is when you do a short sale, most lenders will report the account as “paid in full for less than owed” or “settled” which still has a negative impact on your credit. How many mortgage lates you have accrued during the short sale process CAN impact when you can purchase again and of course your overall credit score, for more info on that visit our blog article on “How long after a short sale can I buy a home?”.
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