Consciously or knowingly ceasing to make mortgage payments is called strategic default. There are many people that knowingly stop paying the mortgage because they cannot afford to continue to do so, and there are others that opt to stop because they believe that this might accelerate their short sale or their loan modification.
Borrowers need to understand the consequences of their actions. Late mortgage payments impact your credit score and thus, they also impact your future ability to borrow.
The Home Affordable Foreclosure Alternatives (HAFA) program has specific guidelines, which often allow for a short sale when the borrower is current on the mortgage. Additionally, short sales can be completed for short sale sellers that have not missed a single mortgage payment. For more information on the HAFA program, visit www.MakingHomeAffordable.com
Some homeowners also stop making their Home Owners Association (HOA) payments. This can often be a short sale deal killer. Short sale lenders do not like to pay the seller’s unpaid HOA balance and often will only allocate a small amount of money for HOA document and transfer fees. Most experts advise short sale sellers to continue to pay the HOA dues whenever possible.
Whether to continue to make the mortgage payments or HOA dues is a personal decision that can only be made by the borrower. Understanding the consequences of the late payments can often help to make a more informed decision.
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The answer is “yes” and “no” and “maybe.” According to an excellent chart that is available for download (http://www.scribd.com/doc/85625440/Loan-Waiting-Periods), if you are obtaining an FHA loan for your next purchase, there may be no waiting period for a borrower who participated in a short sale to buy again. However, that borrower would have to have completed the short sale with no late payments on any mortgages and no consumer debt within the 12-month period prior to the short sale. Also, the borrower must be able to prove that s/he was not taking advantage of the declining market conditions.
Short sale sellers are often curious about the waiting periods required to purchase again after significant derogatory credit events (such as short sale, foreclosure, and bankruptcy). Use the handy chart in order to familiarize yourself with the latest and greatest information about all of the different loans and their waiting periods. That way, when you take your next short sale listing, you will have another tool at your disposal.