While the short sale game has been around for some time, there are still a number of sellers that are considering selling their home as a short sale—perhaps because the are irritated because they are upside down on their mortgage or perhaps because they need to sell right now. Many of these sellers are current on their mortgage payments.
Some people are under the impression that you cannot do a short sale if you are current on your mortgage. The truth is that sometimes you can, and sometimes you cannot.
What most lien holders are looking for is imminent default. Even if a seller is current, perhaps he or she will default on payments soon due to an upcoming issue (retirement, job loss, relocation and incarceration among other things).
There are lenders that will NOT accept a short sale unless the seller is currently in default. And, there are other lenders that will not accept a short sale with a seller in default unless they have verifiable evidence of the hardship.
Consciously or knowingly ceasing to make mortgage payments is called strategic default. There are many people that knowingly stop paying the mortgage because they cannot afford to continue to do so, and there are others that opt to stop because they believe that this might accelerate their short sale or their loan modification.
However, the conscious decision to stop making mortgage payments cannot be made by a real estate agent. Borrowers need to understand the consequences of their actions. Late mortgage payments impact your credit score and thus, they also impact your future ability to borrow.
The Home Affordable Foreclosure Alternatives (HAFA) program has specific guidelines, which often allow for a short sale when the borrower is current on the mortgage. Additionally, Short Sale Expeditor® often successfully completes short sales for short sale sellers that have not missed a single mortgage payment.
Whether to continue to make the mortgage payments is a personal decision that can only be made by the borrower. Understanding the consequences of the late payments can often help to make a more informed decision.