Probably one of the most common questions that I hear negotiating Short Sales in Los Angeles and Orange County, California is:

“Do I have to be behind on my mortgage to do a short sale?”

It is a totally logical and fair question.  Unfortunately, there is no really clear cut answer.  It all depends on your particular situation and lender.

In my experience I have found that banks are much more receptive to writing off tens of thousands of dollars if they feel that a foreclosure is inevitable.  So, being behind on your mortgage does help with the negotiations but your credit is at risk.  The closer you are to foreclosure, usually, the more negotiable the bank is.  If a foreclosure costs a bank on average, say $40,000 plus the loss on the loan, they will do the best they can to avoid this additional costs.

With that said, many banks are open to discussing loan modifications and short sales if you are not behind on your mortgage.  I have worked on several loan modifications and short sales where, for example, Litton actually offered the borrower $3,000 to help with moving costs at close of escrow.  If you can demonstrate to the bank that, even though you are not behind now, doing a short sale is in their best interest in the long run, they will listen.

It is more about presentation and having an open dialogue with the bank that is important.  That is the key to a successful short sale transaction.

Respectfully,
Mark Shandrow
Los Angeles and Orange County
REO and Short Sale Real Estate Broker