One of the main questions sellers who are contemplating a short sale always ask is whether they should stop making mortgage payments. There is no cut and dry answer to that question. Not to mention, it's also a legal question best answered by those in the capacity to render such advice -- which automatically bars real estate agents from answering it, unless those agents sport a J.D. after their names.
Every situation is different. Every short sale seller is different. Some sellers have a high tolerance for risk and others do not. See, the thing is if you stop making a mortgage payment, at some point, the lender is likely to foreclose. But there are pros and cons to each side. And in some situations, but certainly not all, a file may not receive much attention if it's not in default.
I am closing a couple more short sales in Sacramento this week, both of which are in default. These were not calculated defaults by any stretch. In one instance, the husband, a sole breadwinner, lost his job. They have two loans on this short sale, and the second lender was threatening to send the file to collection. Generally, when a file goes to collection, it's sold to a third party.
On top of this, they had a minor emergency in the kitchen that resulted in a small flood. Fortunately, insurance covered most of the damage, but the sellers still had to pull funds out of thin air to pay a deductible. They also had to make a payment on the second loan to prevent that loan from leaving the lender's portfolio.
I had sold this short sale 2 or 3 times before we landed a buyer and a buyer's agent who would stick with the transaction. That sort of comes with short sale territory, though -- sometimes I have to do my job over and over. But I don't give up. I've been in the real estate business long enough to believe there is a buyer out there for every house. Just like there are buyer's agents in this business who really care if their buyers close escrow.
Although this seller had stopped making his mortgage payment due to circumstances beyond his control, I am hoping that his credit rating will pull itself back together in a couple of years. I'd like to see him buy a home for his family once again in the not-too-distant future. I think he would like that, too. I wish all my sellers could better protect their credit ratings by keeping their payments current, but for some of them, it's just not possible. In part, we've got Fannie Mae short sales to thank for that. Don't even get me started on Fannie Mae.
But remember, it's not so much the short sale that really dings your credit rating as it is the late payments. I've had clients who closed a short sale and turned around to buy another home 2 months later. Some agents tell their sellers to purposely go into default so the short sale will get approved faster and the agent will get paid sooner. That's not necessarily in the client's best interest. Before any seller stops making a mortgage payment, that seller should get legal advice.
Today, I will have a very happy short sale seller and a thrilled buyer's agent who gets to be a hero to the buyer. And that's what will make this Wednesday a great day!
Photo: Big Stock Photo
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
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The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
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Wise to stay away from legal advice and of course you are right...every situation is different....and glad you pointed out to those who don't know...it is not the short sale that is the credit dinger...but the non-payment.
Elizabeth...you bring up some great points about the advice we give (can or should) when it comes to the short sale process. I'm on the end of the stick here, as I've only got one short sale listing at this point. My market (Midtown condos) makes selling a short sale tough, as I can probably find the same floor plan either priced right, or unfortunately, already a foreclosure.
But I got an e-mail from some company trying to sell me on creating an LLC to protect MY ASSETS from a law suit from a Seller who got wrong information.
While our goal is to help the Seller sell their home, we really have to be careful NOT to give advice outside of our expertise (and license) which is to sell real estate.
If not careful, you could really be on a tight rope.....
It's hard to advise people on general questions when there are so many specifics that can make the answer change. Often clients want a hard and fast answer but there just aren't any.
Elizabeth - I agree with your comments about giving legal advice. Whether making payments or not, is probably likely playing poker with blinders on. I would suspect the decision would likely be influenced by which lenders are involved! But as an agent, I wouldn't be comfortable saying one way or another.
I think the secret of your success with "short-sales" is your unbridled energy, and tenacity. Where many real estate professionals would throw up their hands and walk away, you see it as a challenge, and continue working.
Elizabeth: I am getting ready to list a Short Sale with a seller who isn't going to miss any payments. Would be nice if she could qualify for another loan to buy sooner rather than later.
Great Advice, Elizabeth!!! We should stay within our limits of our business and let the legal questions go to the legal world. Keep up the great blogs of advice for us to keep learning!
Elizabeth, I heard it is the investor behind the sellers mortgage which determines if you have to miss a payment.
True? or not?
Elizabeth I get these questions too in regards to loan modifications, and its hard to tell people there is no clear cut answer. Advice like that really isn't my place and it can get you into some trouble.
I used this as a launching point for my latest post. Thanks for the inspiration!
Hey Missy -- It's generally the PSA guidelines.