Common Short Sale Questions we receive on a regular basis.
(1) Are you seeing short sales getting approved on investment properties for which the payments are current?
Very Difficult to get anyone’s attention if you are current, and also depends on who your lender is and who they are servicing the loan for. If your loan happens to be owned by Fannie or Freddy then there are guidelines in place that call for servicer to negotiate the short sale prior to loan being in default. The reality is going to be that if you are trying to short sale an investment property and it is current then YES; this will be a tough assignment and the chances for success are maybe no better than 25%. If your behind in your payments the bank may be more willing to consider a short sale.
(2) What are the credit score consequences for a short sale when payments are current versus a short sale when you stop making payments?
Much less of a credit hit on scores because you’re not being penalized for each 30 day late, eventually the short sale will appear on your credit, Assuming it gets approved and closed, as a Debt Satisfied for less than the original loan amount. This will create a hit on your scores of approx 100 points and it will be about 2-3 years before you see your scores back approaching what they were before the short sale. Other factors that will help or hurt your score is all of your other credit history. If you maintain payments on all other credit accounts such as credit cards, automobile loans, etc you will see your scores improve quicker over time compared to someone that defaults on all credit accounts.
(3) Are there issues beyond tax consequences for collecting rent and not paying mortgage?
No, you continue to be the owner of property and have the right to continue to collect rent for as long as you are able to.
(4) What happens if you stop paying HOA?
Don’t advise that you do that, you can stop paying taxes, payments and most anything else but HOA fees are the one thing that the lenders will not agree to pay for to close a short sale. Also if you have a tenant it may cause a problem for your tenant, depending on your HOA and how they manage access to common areas. In some cases where the HOA includes the water, I have seen HOA’s shut off water to the individual unit for lack of payment.
(5) I think there may still be some litigation that the HOA is involved in- would this affect the short sale at all?
Only in the marketing of property, if litigation is limiting availability of financing then you are limited to marketing to investors with cash and they will drive prices down farther, maybe to point that your lender will be unwilling to absorb a larger loss.