Applied for Forbearance and Was Offered Only a Short-Sale Option

Mobile, Alabama
Personal Finance
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Applied for Forbearance and Was Offered Only a Short-Sale Option

Susan McBride
Fairhope, AL · Member since 2013 · 27 posts · 4 votes

Hi.  I am currently unemployed and have my home on the market.  I have very little equity in it and my loan balance is around $400k.  It is one of the smallest, least expensive homes in a beautiful sought-after golf community, with the majority of homes being in the $600-900k range.  I priced mine at $430k, then dropped it to $415k.  It has only been on the market for 20 days.

I contacted my mortgage company and completed an application for a forbearance to give me time to sell it and/or find a job and catch up on the payments.  I am currently only one payment behind (May 2024).  The mortgage payment is $3,100/mo.  I just received a letter stating that the only option they would offer me is a short-sale and that I was not eligible for a forbearance since I indicated I was interested in selling the home.  But, I don't believe a short-sale is going to be necessary.  At the new price, I believe it will sell in the next 30 to 60 days.

I don't understand why the mortgage company would prefer to take a loss on a short sale instead of allowing me to defer a couple of payments in order to sell it and pay them back in full.

Can anyone explain this and do you have any suggestions as to how I should proceed?  Thank you!

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y

@Susan McBride

It’s because of fractional lending.

First What is your interest rate?

So your loan is $400k. Now that you are behind the bank has to put this as a liability on their books and have $400k cash set aside

Banks only require 10% reserves typically so that $400k is stopping them from lending approx 3.6M in loans

3.6M at 7% is a big number and will lose a lot more from this than $10-$20k on your loan.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Susan McBride

    It’s because of fractional lending.

    First What is your interest rate?

    So your loan is $400k. Now that you are behind the bank has to put this as a liability on their books and have $400k cash set aside

    Banks only require 10% reserves typically so that $400k is stopping them from lending approx 3.6M in loans

    3.6M at 7% is a big number and will lose a lot more from this than $10-$20k on your loan.

    7e investments53 Reviews
    WebsiteView Page
    1Reply
  • Susan McBride
    OP
    Fairhope, AL · Member since 2013 · 27 posts · 4 votes
    2y
    Quote from @Chris Seveney:

    @Susan McBride

    It’s because of fractional lending.

    First What is your interest rate?

    So your loan is $400k. Now that you are behind the bank has to put this as a liability on their books and have $400k cash set aside

    Banks only require 10% reserves typically so that $400k is stopping them from lending approx 3.6M in loans

    3.6M at 7% is a big number and will lose a lot more from this than $10-$20k on your loan.

    Rate is 6.25%
    0Reply
  • Rob Jacobs
    Real Estate Coach · USA · Member since 2022 · 44 posts · 12 votes
    2y

    Banks are required to offer you all options that are possible and in your case, it's a short sale. If you're only 30 days behind, you have a few moths before an auction will take place. As long as you close on your house before the foreclosure sale date, you're fine. If you get to within 60 days of the foreclosure, you need to move to a short sale immediately. Banks often require you to have a full set of documents including an accepted offer in their files and the short sale case oened 37 days prior to the auction date. 

    1Reply
  • Susan McBride
    OP
    Fairhope, AL · Member since 2013 · 27 posts · 4 votes
    2y
    Quote from @Rob Jacobs:

    Banks are required to offer you all options that are possible and in your case, it's a short sale. If you're only 30 days behind, you have a few moths before an auction will take place. As long as you close on your house before the foreclosure sale date, you're fine. If you get to within 60 days of the foreclosure, you need to move to a short sale immediately. Banks often require you to have a full set of documents including an accepted offer in their files and the short sale case oened 37 days prior to the auction date. 

    Thank you very much.  The only gave me until 5/29 to agree to a short sale.  Should I agree or ignore them just keep trying to sell it?

    0Reply
  • Rob Jacobs
    Real Estate Coach · USA · Member since 2022 · 44 posts · 12 votes
    2y
    Quote from @Susan McBride:
    Quote from @Rob Jacobs:

    Banks are required to offer you all options that are possible and in your case, it's a short sale. If you're only 30 days behind, you have a few moths before an auction will take place. As long as you close on your house before the foreclosure sale date, you're fine. If you get to within 60 days of the foreclosure, you need to move to a short sale immediately. Banks often require you to have a full set of documents including an accepted offer in their files and the short sale case oened 37 days prior to the auction date. 

    Thank you very much.  The only gave me until 5/29 to agree to a short sale.  Should I agree or ignore them just keep trying to sell it?


    Don't ignore them, just play along with them for now to keep them from canceling your hardship request. Just drag your feet on everything up to their deadlines as much as you can until your house is sold. 

    In this market, your house should sell in a week as long as you have an experienced agent. The bank will require it to be listed on the MLS anyway. A good agent will know how to get top dollar fast.

    0Reply
  • Minna Reid
    Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
    2y

    Are you trying to sell this FSBO? I don't see how you are anticipating less than $15k closing costs on a sale this size? And by the way your balance increases with non payment.

    Not much to worry about if you are only 30 days behind, but unless you do move this quick you will in fact be looking at a short sale. 

    Good news is they are obviously open to that. I wouldn't worry about the 5/29 date - they will certainly make the option of short sale available to you again anytime between now and the foreclosure sale...which could be many months or even years away.

    0Reply
  • Susan McBride
    OP
    Fairhope, AL · Member since 2013 · 27 posts · 4 votes
    2y
    Quote from @Rob Jacobs:
    Quote from @Susan McBride:
    Quote from @Rob Jacobs:

    Banks are required to offer you all options that are possible and in your case, it's a short sale. If you're only 30 days behind, you have a few moths before an auction will take place. As long as you close on your house before the foreclosure sale date, you're fine. If you get to within 60 days of the foreclosure, you need to move to a short sale immediately. Banks often require you to have a full set of documents including an accepted offer in their files and the short sale case oened 37 days prior to the auction date. 

    Thank you very much.  The only gave me until 5/29 to agree to a short sale.  Should I agree or ignore them just keep trying to sell it?


    Don't ignore them, just play along with them for now to keep them from canceling your hardship request. Just drag your feet on everything up to their deadlines as much as you can until your house is sold. 

    In this market, your house should sell in a week as long as you have an experienced agent. The bank will require it to be listed on the MLS anyway. A good agent will know how to get top dollar fast.


    Thanks again! I have it listed as FSBO but using a realtor to list it on the MLS (Beycome). If I don't have an offer soon, I have a realtor I plan to list with. He is a young go-getter in the area.

    0Reply
  • Susan McBride
    OP
    Fairhope, AL · Member since 2013 · 27 posts · 4 votes
    2y
    Quote from @Minna Reid:

    Are you trying to sell this FSBO? I don't see how you are anticipating less than $15k closing costs on a sale this size? And by the way your balance increases with non payment.

    Not much to worry about if you are only 30 days behind, but unless you do move this quick you will in fact be looking at a short sale. 

    Good news is they are obviously open to that. I wouldn't worry about the 5/29 date - they will certainly make the option of short sale available to you again anytime between now and the foreclosure sale...which could be many months or even years away.


     Thanks for the info.  I have two quotes for closing costs, one at $2k and the other at $2,500.  

    I should also mention that, if I get a job soon, I can easily make up the payment(s) in arears at my earning level, so it very unlikely that this will end up as a short sale.  I was just trying to understand why my mortgage company proposed a short sale from the very beginning instead of just giving me a couple of months breathing room to find a new job.

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Susan McBride:
    Quote from @Minna Reid:

    Are you trying to sell this FSBO? I don't see how you are anticipating less than $15k closing costs on a sale this size? And by the way your balance increases with non payment.

    Not much to worry about if you are only 30 days behind, but unless you do move this quick you will in fact be looking at a short sale. 

    Good news is they are obviously open to that. I wouldn't worry about the 5/29 date - they will certainly make the option of short sale available to you again anytime between now and the foreclosure sale...which could be many months or even years away.


     Thanks for the info.  I have two quotes for closing costs, one at $2k and the other at $2,500.  

    I should also mention that, if I get a job soon, I can easily make up the payment(s) in arears at my earning level, so it very unlikely that this will end up as a short sale.  I was just trying to understand why my mortgage company proposed a short sale from the very beginning instead of just giving me a couple of months breathing room to find a new job.


     accept the short sale offer and get an agent to list the property. Get an attorney to review to confirm it is not binding (which it should not be).

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    0Reply
  • Susan McBride
    OP
    Fairhope, AL · Member since 2013 · 27 posts · 4 votes
    2y
    Quote from @Rob Jacobs:

    Banks are required to offer you all options that are possible and in your case, it's a short sale. If you're only 30 days behind, you have a few moths before an auction will take place. As long as you close on your house before the foreclosure sale date, you're fine. If you get to within 60 days of the foreclosure, you need to move to a short sale immediately. Banks often require you to have a full set of documents including an accepted offer in their files and the short sale case oened 37 days prior to the auction date. 

     Thanks!

    0Reply
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