Short Sale Question.

I have a question for what is a unique situation, to me. I received a call from a homeowner today. As of today, he is current on his mortgage payments. However, he can no longer afford to make the payments, as he was recently divorced. He needs a quick solution, within 30 days. He has no equity on his property…maxed out. He has managed to stay afloat by lender money from family and friends.

I am offering a short sale option, which he is open to. Now, what he wants to know and I want to know as well are:

  1. How likely are the banks to do a short on a loan that is current? And what are the likely scenarios if they say no, initially?
  2. If say he gets 1 month behind, and a short sale becomes more viable to get approved, how is it reported on his credit? And how does a short sale affect a borrower’s credit rating?


Unlikely the lender will allow a short sale on the 1st while the loan is current. If he is late it will be reported as late. They run in sequence 30 60 90 and so on. I have never shorted a loan that was less than 120 days behind. I have heard but not verified that 2nd’s have been shorted when the loan is current if the hardship is there.


Banks rarely even consider a SS or SP on a performing loan… why would they? They actually have the Insurance claim syndrome until they see that the borrower really isnt able to make the mortgage payments.

As for the credit ding… naturally being behind is going to ding the credit and 90s, 60s and 30 day lates are issues… The research I have done indicates that a SS is hitting the credit score about 80-100 points where a foreclsoure hits it about 250 points.

Hope that helps…

Michael Quarles

Thanks for the response, guys.

This guy, who irronically, is a morgage lender certainly have the hardship. He is starving right now in this market. Not even christmas gift for the kids. Plus he is about $80k in personal debt, which has kept him afloat.

He is literally ready to throw in the towel. He tells me that he will abandon the property and let the bank forclose on it if his credit is going to take any significant hit.

Would you guy take a shot at a potential deal like this? Loan consist of 1st and 2nd. First is Chase = $284k, second is BoA = $71K.

From your experiences, is it likely the lender would entertain a short if he is 30 days late?


I have definitely heard where investors were able to short a loan while the loan is CURRENT. You have to get his loan from the Asset dept in to the Loss Mitigation dept though. What you’d have to do is push and sell the homeowners hardship. 80K in debt, overleveraged, plans on abandoning the property etc.

Investors are used to working with defaulted loans but I know a short can be done when loans are still current but have all the telltale signs that it’s heading to default. The amount of discount you get of course all depends on property condition and homeowners situation.
You would have to weigh out all the options and see if it’s a deal worth you working on. Shawn McCloskey from a company called Property Match has done deals like this before. This is not a plug for anyone, I just know his company has experience doing this … that’s all.

Hope that helps.


Thanks a lot Joe. I appreciate the info. I am going to pursue it. If I could at least short the second, it will be worthwhile.

We have been able to initiate both short sales and deeds in lieu of foreclosure on loan that were current but about to go into arrears.
It requires that the person holding the loan contact the bank immediately and explain their situation. They then need to set you up as their contact person and give you Authorization. You then need to contact the lender and provide them with really strong proof that this person is going to go into arrears if something is not done immediately.

However, you will not be able to start a short sale without a contract for sale. With Chase and Band of America you have some hope although Chase can be very tough. Any agreements you get from
Chase must be in writing. Do not trust what they tell you as they are notorious for going back on their word.

Be aware that if the ex is on the note you will need her full cooperation.