There isn't really anybody you can call at the bank to ask because you probably can't get through to a person who can help without going through the red tape the bank has put into place to process the short sale. It's a huge problem that short sales are processed in this manner. You would think a borrower could call the bank and ask if he or she can be current to do the short sale, but no, not at the big banks.
Do Not Talk to the Collection Department for a Short Sale
When you call the bank, one of the first things you may hear is a monotone warning that the bank is a debt collector and is attempting to collect a debt. It's similar to being arrested and hearing a police officer say anything you say can and will be used against you.
People tend to tune out this warning about debt collection. It's easy to forget that the bank is not your friend. You are not really a customer when you are attempting to do a short sale. You are an adversary, a person who is negotiating a short payoff of your obligation.
All of your life, you have probably trusted the bank. Your may recall opening your first savings account or how it felt when you wrote your first check. You may fondly recall the smiling bank teller slipping you a cherry sucker along with your first deposit slip. Those people are gone. Those days are gone. It's the bank versus you now.
The people employed in the collection department have a job to do. That job is to collect money from you. If they can get you to make a mortgage payment, their job is done. Their job is not to explain how to qualify for a short sale. You either talk to a short sale negotiator at the bank, your real estate agent or a lawyer. If you need legal advice, ask your lawyer. Do not talk to the collection department.
What Happens When the Bank Rejects a Short Sale Because the Seller is Current?
It is possible that the bank won't come right out and tell you that you have to be delinquent or to stop making your mortgage payments. That's because the bank needs to protect the rights of its investors. It cannot advocate delinquency because the investors might sue the bank.
A typical scenario is the bank will reject a short sale due to the seller being current. The bank will say you can afford to make your mortgage payments because, well, because you are. That is typically code for: go into default. However, if you expect the bank to lay it on the line like that for you, perhaps you would also be interested in buying some swampland in Florida.
The investor guidelines might state that a borrower needs to be in default for a certain number of days before the short sale will be approved. That time period is usually 30 days or 60 days delinquent. If it's 30 days, that means if your payment is due January 1, and your short sale is rejected on December 15th, you will not be eligible until February 1.
The Effect of a Short Sale Delinquency on Your Credit Report
The problem for many who are facing a delinquency decision for a short sale is the ethics of the situation. Many people have worked very hard to build up a good credit rating. It is inconceivable to be delinquent. It can make you feel very uncomfortable. It might not seem right to deliberately stop paying.
But if you want that short sale, you might have to go delinquent. In some cases, there is no other way around it. A short sale in itself will affect your credit report. All 30- 60- 90-day delinquencies will further affect your credit. However, many people have emerged 2 years later with a high enough FICO to buy a new home. A short sale generally trumps a foreclosure.
As for your bank lying to you, it's not the first time that has happened and, sadly, it won't be the last.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
