Foreclosure in Sacramento>Question Details

Nezzy, Home Seller in Sacramento, CA

can I short sale my home when i'm in review for a loan modification?

Asked by Nezzy, Sacramento, CA Wed Sep 1, 2010

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I see you have received many interesting answers.

It's been my experience in selling short sales in Sacramento over the past 4 or 5 years that the answer is NO.

None of the lenders I have worked with will open a short sale file while a loan modification is in progress. In fact, it's been one of the biggest problems with opening short sales at various banking institutions. Because by the time the homeowner has contacted me, in probably 9 out of 10 situations, the homeowner has already tried to do a loan mod but for whatever reason was denied. Even with the rejection in the system, the bank left the file in loan modification status, and it's often time consuming and frustrating to get it yanked out of the loan mod status and switched to a short sale.

I don't know of any lenders who will leave a file open in a loan mod status while opening a new file in short sale status. It just isn't done.

But that doesn't mean that you can't close out the loan modification and switch to a short sale because you can. But you can't do both simultaneously.
2 votes Thank Flag Link Thu Sep 2, 2010
Is your head spinning from all these varying answers?! Mine is!

I agree with Elizabeth, she is right on target. I would also add to that--often times, if you can't get the loan mod approved, your bank will suggest you do a short sale. In my experience with short sale clients who've come to me with this exact situation--that is a good nod from the bank that the short sale will be processed fairly smoothly. That's at least somewhat of a positive for you in what must be a difficult situation.

While you're in Loan Mod status with the bank, also remember to keep track of any Foreclosure status on your home. You should be able to ask the Loan Mod rep helping you if there is a "sale date". Loan Mod and Foreclosure Departments do not necessarily work hand in hand, so you do have do some communication to be sure. Sometimes, a home will be sent to Foreclosure due to this lack of communication. I don't want to scare you, just warn you, and remind you to double check on this!

Hope my two cents was worth at least a nickel!
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1 vote Thank Flag Link Thu Sep 2, 2010
Nezzy, the short sale requires permission from your lender(s), as does the loan modification. Your hardship package, which I assume was submitted to your lender(s) for review must reflect that you are able to make a modified payment.

You should decide whether you want to keep the house or whether you would like to sell or leave the house.

If you are turned down for a modification, because the lender(s) feels that you can't afford to make the modified payments, you could ask them to consider a short sale or deed-in-lieu of foreclosure.

You can list your house as a short sale at any time, it is up to you. It needs to make sense for you.
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1 vote Thank Flag Link Thu Sep 2, 2010
I agree with Keisha in that your lender will say that they want you to do one or the other within their system. HOWEVER, there's intent and reality. Many of my clients (I am a home retention consultant as well as short sale certified) that I have coached and want to keep their home pursue the loan modification evaluation, only to be denied with no time to obtain an offer on a short sale before the the home forecloses. That's not fair to homeowners who are honestly trying to be part of the solution to their dilemma.

August 1, the HAFA program was rolled out for Fannie Mae and Freddie Mac loans as well as commercial lenders who had volunteered for it. That has helped streamline and put more focus on making sure the loan mod/short sale effort is completed and not sabotaged by the home foreclosing in the middle of that effort.

My recommendation? The same paperwork is required to be evaluated on the loan mod, and short sale so prepare the file, then contact your lender. Make sure you're working with a realtor with experience on short sales (write if you'd like a list of questions to ask beyond 'are you experienced with short sales?'). First and foremost, DO YOU HAVE AN ALLOWABLE HARDSHIP? Then determine what your situation is relating to number of liens on the property that need to be resolved, is there mortgage insurance (MI), Are any of the loans Fannie Mae or Freddie Mac?

If this is your primary residence and you are living there, almost all lenders are reviewing your situation through HAMP (loan mod) automatically, before evaluating the short sale under HAFA. Beyond that, they may evaluate you under lender-specific programs as well. Both the HAMP and HAFA programs are supposed to stop the foreclosure process during the evaluation. But this is a work-in-progress and each situation is unique as to a foreclosure happening in the middle of your efforts.

So the answer is always, 'it depends' on your situation and your real desired results. I prefer to play the odds, if you've already received a Notice of Default (NOD) and do both so I have an offer in place, if it makes sense....
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1 vote Thank Flag Link Thu Sep 2, 2010
Nezzy, most lenders will not allow you to do both a loan mod and short sale simultaneously. Those are each considered "work out" programs and they have hierarchies as far as the lender is concerned.

They would prefer you first attempt to "modify" your laon, and then a short sale would be the next workout program in line if a loan mod did not work for you.

You can also call your lender and simply ask them. Request to speak with someone who could giveyou that information. Do not trust the first individual who picks up the phone.

Feel free to contact me or any agent who specializes in short sales. They usually are designated with a CDPE, HAFA or HRC (Home Retention Consultant) certification as I am. You really have to be cautious who you get your info from.
1 vote Thank Flag Link Wed Sep 1, 2010
You absolutely can! Many people begin the process for both the loan mod and the short sale and go with whichever gets approved first. Honestly, I haven't seen many loan modifications get approved. Sometimes they will put you on a "trial" modification for 12 months and then deny you. But be careful because if it's denied after the 12 months, sometimes they want the difference back or at least interest on it.
1 vote Thank Flag Link Wed Sep 1, 2010
Elizabeth, Sue and Keisha are right. If you want to short sale, you will most likely need to request in writing that you deny the loan modification. You have to tell them to stop the loan mod.

Now, your lender has multiple departments, that DO NOT talk to eachother. Even with the same computer system, it is likely that you will get different answers from different departments. So, even if you call your lender for help, realize you probably will get varying degrees of answers form their employees.

If you want to short sell your house, get a Realtor with short sale experience who works with a team that knows the way that banks deal with short sales. You can get more information about short sales at Janus Equity Management.
0 votes Thank Flag Link Wed Sep 8, 2010
Although it may be possible, you must consider the consequences of all of your actions. Do your homework.
What happens with a "short sale"?
Short sales are taxed under the same rules as foreclosures.

Recourse debt cancellation is not satisfied with the surrender of the property, so any debt not satisfied with the sale proceeds would be taxable as cancellation of debt income, except for certain "qualified principal residence indebtedness." See section on "tax relief" above. (Rev. Rul. 92-99, 1992-2 CB 518. Also see Treasury Regulations Section 1.1001-2(a)(2).)

Therefore, the tax consequences would be similar to the "recourse debt" example, above. The buyer and seller might also have legal concerns about whether the lender would consent to the transaction and whether (for recourse debt) the lender would in fact forgive the debt.
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0 votes Thank Flag Link Thu Sep 2, 2010
Hello Nezzy,

Yes you can. I've done numerous short sales after clients have requested a loan modification.

Kamal Randhawa
0 votes Thank Flag Link Thu Sep 2, 2010
Hi Nezzy,

The best person to answer this question is your lender. Contact the representative that is working your loan mod and ask them what their process and policy is regarding allowing an active short sale while going through the mod. Get it in writing. Then, if you are in (or going into) default, you may weigh the progress of the mod vs. losing it to foreclosure to determine whether you want to try to sell first. Most lenders will stop a foreclosure if you have an offer on the property. Because of HAFA, the lenders are required to try to mod before they foreclose. Again, check with your lender.

To keep yourself out of possibility of foreclosure, do NOT get more than 30 days behind in your payments. This is a fatal error homeowners make when trying to qualify for a mod and show hardship. Owners just stop paying, period. This is why they fall into danger of foreclosure while trying to mod. if you are more than 30 days behind, try to catch up if you want to get the mod. If you are more than 90 days behind with no ability to catch up, the short sale may be the better option.

You can also ask an attorney who specializes in foreclosure prevention. I am referrencing one I work with in the Sacto market.

Good luck,
Krista Johnson, GRI, SFR
Broker Assoc., Connect Realty
0 votes Thank Flag Link Thu Sep 2, 2010
If there is a possibility to modify your home mortgage: reduce your payment, lower your interest rate, recapitalize or forgive the delinquent payments, and even reduce the principal owed, which will correct your credit with timely payments, why would you consider a short sale. Short sale will destroy your credit, leave you unreliable to obtain a mortgage for a minimum of 2 years at which time you will need a minimum 20% down payment.

Good Luck
Bob Patrick
Buy a home after foreclosure, short sale or deed-in-lieu-of expert
0 votes Thank Flag Link Thu Sep 2, 2010
Thank you for your question. Every shortsale is unique for many reasons, a few of the most common are:
1) Some Trustors (DEFAULTED HOMEOWNERS) have more than one loan on the home. Some people took out a 2nd home mortgage using the home as collateral and used the money to make the home more valuable, hence the homeloan, of course some people actually stole money out of their home, they used the homeloan for expensive luxury items that usually only the wealthy or retired working people own. If the home owner used the money for home improvements they will have little to worry about by doing a loan modification or a shortsale.
2) If the homeowner has been living in the home for 3 to 24 months with no house payment although they were financially able to make the payment, then they are liable for all arrearages. If there is only one home loan, the best attempt would be a Deed in Lieu of Foreclosure.
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0 votes Thank Flag Link Wed Sep 1, 2010
Yes definitely.

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0 votes Thank Flag Link Wed Sep 1, 2010
Yes, you can put your house up for short sale.
0 votes Thank Flag Link Wed Sep 1, 2010
Hey Nezzy,
You can start the short sale process by listing the home and having a package ready to submit if the loan mod doesn't work out. It has been my experiance that it is better to complete the loan mod process before submitting the short sale package. These lenders can be easily confused with two packages on the same property.
0 votes Thank Flag Link Wed Sep 1, 2010
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