Will lenders entertain a short sale if the homeowner is not behind on payments?

A seller called me saying she can't afford to pay for her primary residence anymore. She has a 1st with Chase and a 2nd with GMAC for a total of 450K. She'd be lucky to get 350K in this market. She's trying to determine what her options are. I suggested a deed in lieu of 4closure but I read that if her debt exceeds the current fair mkt value of the property the bank may not consider a deed in lieu. She wants to do a short sale but I've not had an experience where a lender will do a short sale unless one is delinquent on their mortgage which she is not. Any ideas?

Jason T.

Real Estate Investor · Mission, Kansas

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May 13 '11, 04:05 AM

Lenders will not accept a short sale unless she's behind on payments. From my experience it has to be several months before they'll entertain a short sale. I tried to help someone negotiate a short sale that wasn't behind on payments and they refused to look at it.

If the monthly payments are low enough that you can cashflow it you could do a contract for deed. She can sell you the property and you just take over her payments. Don't worry about the due on sale clause because a bank is not going to call the note due in full if the payments are being made.

Bill Gulley

Real Estate Investor · Springfield, Missouri

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May 13 '11, 04:06 AM

Options?

She might sell it.
She might lease it until the market/payoff is more favorable
She might have the loan modified
She might be able to refi it and lower payments
She cold make the bank an offer
She could stop paying and move it to a short sale
She could stop paying and do a deed-in-lieu but if not accepted,
She could go to foreclosure

She might work any of the above options in concert with otheroptions ecept the last three.

Then according to some and where she is, she might sneak by allowing the foreclosure to start and then go to court with the robo filings or other claims.

Not knowing any more, I'm out of thoughts at the moment.

Edited: 05/13/2011 at 06:56AM

Mat Lewczenko

Real Estate Agent · Lenexa, Kansas

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May 13 '11, 04:16 AM

One of the other challenges that this particular client may have is if they have any liquid assets. She will have to produce current financials to the bank in your packet in order for them to even entertain taking the loss. So, not only does she have to be behind, if there are assets, then that poses another roadblock to overcome.

Michael G.

Wholesaler · Bay Shore, New York

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May 13 '11, 04:57 AM

Thanks. I havent gotten all the details on the monthly mortgage payments yet. I doubt if they will be enough to cashflow but its a good idea. Never thought about taking it subject to. @Bill - very good suggestions. I think I will bulletpoint these and present them to her as my own intelligent solutions...LOL. @ Mat - You're right. I was thinking about how her whole net worth situation was going to play out since she told me she has another house and she cant pay for them both. I'm wondering if a loan mod, re-fi or any other lender based solution will look at this other home as a way to pay for the house she wants to walk away from.

Mat Lewczenko

Real Estate Agent · Lenexa, Kansas

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May 13 '11, 05:07 AM

Good Luck! or NEXT!

Maryann L.

Real Estate Investor · Methuen, Massachusetts

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May 15 '11, 05:04 AM

Jason T is dead wrong. You can absolutely do a short sale on a property if the homeowner is not behind. It's a myth that you can't and completely different between lenders. Some lenders allow it and some don't and it all boils down to their investor guidelines. The easiest way to find out is to call and speak to someone at length. She should call and make her case.

If this woman WANTS to do a short sale and she has a hardship, and her income does not exceed her expenses, I would go for it.

Jason T.

Real Estate Investor · Mission, Kansas

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May 17 '11, 12:52 AM

DEAD WRONG was a little strong don't you think :) I've never talked to a bank that would consider it but that was a couple of years ago and I haven't talked to every bank out there. Good to hear it's possible.

Xavier Youngblood

Real Estate Investor · Houston, Texas

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May 17 '11, 02:37 AM

A family member just went through a similar deal. Chase, was not interested unless the owner missed 2-3 payments. Any guesses in what the owner did?

-XY

Mauricio Lopez

Real Estate Investor · Las Vegas, Nevada

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May 17 '11, 04:20 AM

Hi cashboy,
I recently ran into the same delema where my clients were up to date in their payments, but the property values had dropped drastically.

Despite the fact that many had told me a shortsale couldnt be done becuase they were current on the mortgage I went ahead and tried.

Wouldnt you know it... After several weeks of pushing and shoving with the banks, We were able to negotiate a successful short sale.

So, I would have to say, "yes" you can do a short sale even if the homeowner is current.

It just takes a whole lot of persistence and determination.

Good Luck...

-Mauricio Lopez

Edited: 05/17/2011 at 04:47AM by Administrator : Contact info must be contained in your signature

Michael G.

Wholesaler · Bay Shore, New York

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May 17 '11, 04:30 AM

She missed 2-3 payments...

Bill Gulley

Real Estate Investor · Springfield, Missouri

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May 17 '11, 04:43 AM

And, let's define "short sale". Can a bank reap the benefits of the disposition of collateral property writing off the mark down, reducing reserves for bad debts and avoid further losses by allowing a property to be sold at a value less than par value of the note? Sure they can. I did this often with doubtful loans, pre-foreclosures.
This was done before the term "short sale" existed!

Can a bank do a "short sale" under the benefits established by regulatorsif the borrower is current with the loan....no. while the people in the bank may call it a short sale, it may not be in the strictest of terms under the guidelines established.

But, that does not mean that someone can't negoiate a payoff and in so doing, the bank may apply many of the aspects or requirements that are truly "required" for the short sale.

They may not be the same thing but have the same effect.
Can

Jaime Kosofsky

Real Estate Attorney · Charlotte, NC

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Jun 13 '11, 11:40 AM

JASON T... you are DEAD WRONG... we have done short sales where the Seller was never delinquent. We did short sales showing an "imminent danger of default", we did not have a deficiency, and the clients credit score dropped from a high 800 to a low 700. The servicers will often tell you they have to be delinquent per Investor directive... call the Investor. I use a customized spread sheet which allows me to calculate the difference between cost of Short Sale vs Cost of Short Sale... with the average time to foreclose now well over 500 days, the biggest fear of the lender is to tie up the property for a year and a half in default... the SS is best way for getting around the time suck, and government interference...

Take advantage of the tension between the servicer and investor... I think you will be pleasantly suprised when done..