Do I Have to Stop Making Mortgage Payments to Qualify for a Short Sale?
No. You should not assume that you have to stop making your mortgage payments in order to qualify for a short sale.
Short-sale eligibility depends on the loan, the servicer, the investor behind the mortgage and your financial circumstances.
Some short-sale programs specifically allow borrowers who are still current—or only slightly delinquent—to be evaluated if they meet the applicable requirements. For example, current Fannie Mae and Freddie Mac servicing guidance both provide paths for borrowers who are current or less than 90 days delinquent to be considered for a short sale. Fannie Mae Servicing Guide
So if someone tells you:
“Just stop paying the mortgage and then the lender will approve the short sale,”
that is far too simplistic.
And intentionally missing payments can create consequences you may not need.
Why Do People Think You Have to Stop Paying?
Short sales are often associated with foreclosure and mortgage delinquency.
That makes sense.
Many homeowners who pursue a short sale are already behind on their payments because of job loss, reduced income, illness, divorce, an unaffordable loan or another financial hardship.
But that does not mean delinquency is always a requirement.
There is a difference between:
Many short-sale sellers are behind on their mortgages
and
Every homeowner must deliberately stop paying before a short sale can be approved.
Those are not the same thing.
Can I Be Current on My Mortgage and Still Need a Short Sale?
Yes.
Imagine that you are still making the mortgage payment, but you know you need to sell.
Maybe you have to relocate.
Maybe your income is about to change.
Maybe the mortgage has become unsustainable and you are using savings every month just to stay current.
Or perhaps your home is worth less than the total amount required to sell it.
You can be current on your mortgage and still have a legitimate reason to explore a short sale.
For some loans, a servicer may evaluate whether the borrower is facing an imminent default even though the mortgage is not yet seriously delinquent. Fannie Mae and Freddie Mac both have provisions addressing borrowers who are current or less than 60 days delinquent in short-sale evaluations. Fannie Mae Servicing Guide
What Is Imminent Default?
In simple terms, imminent default means the mortgage may still be current today, but the borrower’s circumstances indicate that keeping the loan current may not be sustainable.
That could involve a financial hardship or other qualifying circumstances under the applicable program.
The mortgage servicer—not the real estate agent—determines whether you meet the requirements for the short-sale program that applies to your loan.
That is why I do not want homeowners creating a delinquency simply because they think it will make the file easier.
Let the actual guidelines determine what is required.
Should I Stop Paying Because I Know I’m Going to Sell?
That is not a decision I would make based on general internet advice.
Your mortgage payment affects your loan status, and missed payments can have financial and credit consequences.
If you are able to continue making payments and are considering a short sale, contact your mortgage servicer and ask what requirements apply to your loan.
The Consumer Financial Protection Bureau also warns homeowners to be cautious of anyone who tells them to stop making mortgage payments as part of a supposed foreclosure solution. Consumer Financial Protection Bureau
There may be circumstances where a homeowner is already unable to make the payment.
That is different from intentionally creating a delinquency because someone told you it is necessary.
What If I Can’t Afford the Payment Anyway?
Then your situation is different.
If you genuinely cannot make the mortgage payment, contact your servicer as soon as possible and explain what has changed.
The servicer may discuss available loss-mitigation options with you.
Those can potentially include a loan modification, repayment arrangement, forbearance, short sale or deed-in-lieu, depending on the loan and circumstances. Consumer Financial Protection Bureau
At the same time, if selling may be part of your solution, we can start looking at the real estate numbers.
You do not have to wait until the situation becomes worse before finding out what the property is worth.
First Determine Whether You Even Need a Short Sale
This is something I want to repeat throughout this series because it matters.
Being behind on your mortgage does not automatically mean you need a short sale.
And being current does not automatically mean you have enough equity for a traditional sale.
We need to know:
What is the property realistically worth?
What is the mortgage payoff?
Are there other liens, deferred balances or partial claims?
What will the transaction cost to complete?
Once we know those numbers, we can determine whether a traditional sale appears possible or whether lender approval of a shortage may be necessary.
What If My House Is Worth Less Than I Owe?
If the expected sale proceeds will not be enough to satisfy the mortgage and other required obligations, then a short sale may be worth exploring.
The CFPB defines a short sale as a sale in which the property is sold for less than the amount owed on the mortgage and the lender or servicer agrees to the transaction. Consumer Financial Protection Bureau
The lender still has to approve it.
And approval depends on the requirements that apply to your loan.
That is why your payment status should be evaluated as part of the actual short-sale review—not based on a blanket assumption that you must stop paying.
What If I’m Only One or Two Payments Behind?
You may still be early enough in the process to have several options.
Do not assume you need to become more delinquent before anyone will talk to you.
Contact the servicer.
Ask what loss-mitigation options are available.
And if you believe selling is likely, determine the property value now.
A homeowner who is one payment behind can still benefit from knowing whether the house has equity, is close to break-even or appears to require a short sale.
More information gives you more control.
What If I’m Already Several Months Behind?
Then the urgency increases.
Continue communicating with your mortgage servicer and pay attention to every notice you receive.
If foreclosure activity has begun, understand the deadlines that apply to your situation.
And if a short sale appears necessary, do not wait unnecessarily to begin the real estate side of the process.
We still need to market the property, obtain an offer and submit the transaction for lender review.
Time matters.
Will Being Current Make the Lender Reject My Short Sale?
Not automatically.
Again, the applicable program matters.
Current Fannie Mae and Freddie Mac guidance both contemplate short-sale evaluations for borrowers who are current, although additional eligibility and documentation requirements can apply. Fannie Mae Servicing Guide
Other loans may have different requirements.
So instead of asking:
“How many payments do I need to miss?”
ask:
“What does my mortgage servicer require for my particular short-sale situation?”
That is a much better question.
Don’t Create a Bigger Problem Just to Prove You Have One
If you are struggling financially, you already have enough to deal with.
You do not need to deliberately make the situation worse because you heard that a short sale requires missed payments.
If you cannot afford the mortgage, be honest about that with your servicer.
If you can afford it but know that selling is necessary, explain your circumstances and ask about the applicable requirements.
And if you are not sure whether the property actually requires a short sale, let’s start there.
Start With the Numbers
Before making decisions about mortgage payments based on a possible short sale, determine:
What is the home worth?
What do you actually owe?
Are there other liens or deferred amounts?
Would a traditional sale work?
If the numbers show enough equity, you may not need a short sale at all.
If there is a genuine shortage, then we can look more closely at the loan and what the servicer will require.
At Midas Realty Group, we work with Southern California homeowners facing complicated mortgage and short-sale situations.
If you are considering selling and are unsure whether you have enough equity for a traditional sale, we can help you understand the real estate side of the numbers before you make assumptions about what comes next.
Do not stop making mortgage payments simply because you think you have to qualify for a short sale. Find out what your actual options are first.
This information is for general educational purposes and is not legal, tax or financial advice. Foreclosure and loss-mitigation situations can involve important deadlines and individual circumstances. Consider consulting an appropriate attorney, HUD-approved housing counselor, tax professional or other qualified adviser when needed.
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