A local attorney who counsels many of our clients, Richard Zaretsky, has just posted this excellent article on his blog. It answers the very common, but perplexing question posed above.
Do We All Have A Common Goal? Do all short sellers cooperate with the short sale process? The answer is a resounding NO. The short seller is typically living in the house "for free" and is not all that interested in moving out and paying rent. Therefore, short sellers are notoriously delay oriented. Banks believe this to be a fact.
I Want To Stay! Loan Modification borrowers are in a somewhat different boat. They don't have any plan to move out of the house as they want to modify the loan to something more affordable.
They Want WHAT!?!@? Short Sellers and Loan Modification borrowers have something in common - they have to accept the lender's terms of the short sale or loan modification or face loss of the home through foreclosure. The alternative of the loss of the house in foreclosure is usually not an desirable option. The lender can never be sure that (a) the buyer in a short sale is not going to walk away from the sale at the last minute, (b) the seller will accept the demands the lender conditions the short sale approval upon, or (c) the borrower will accept the loan modification terms offered by the lender (if any are offered at all).
Hurry Up and Wait? So knowing or believing all the above, if you were the lender and you knew that from start to finish the mortgage foreclosure process was going to take 300 to 700 days and the short sale or modification may or may not end up successful, would you wait 3 or 5 months for a short sale contract or for the borrower to submit complete loan modification information - BEFORE you started the clock on the foreclosure process? OF COURSE NOT! Therefore, even if you have a good faith intention to proceed with a short sale or loan modification, the lender will NOT stop a pending suit or delay filing an otherwise ripe suit for foreclosure. The result is one hand of the lender pursues solutions with the borrower and the other hand of the lender pursues solutions against the borrower - all at the same time.
Remind Me To Stop Before I Drive Off the Cliff! Even the HAFA and HAMP programs have guidelines for participating lenders that state that the lender will not have to stop the foreclosure process - but only that if a borrower is accepted into the processing of under HAFA or HAMP, the lender will not actually have the foreclosure sale! But they can go all the way to getting a foreclosure sale date set!
So if you are trying a short sale or modification, don't be surprised when the Sheriff rings your doorbell at 6 a.m. with a subpoena and summons and complaint for foreclosure even though the nice people at the bank are helping you in your "solution". If you are 90 days or more late (typically), you should expect that visit and introduction to your foreclosure complaint very very soon. And once you get served BE SURE TO IMMEDIATELY CONTACT YOUR ATTORNEY TO DISCUSS THE FORECLOSURE AND WHAT SHOULD BE DONE ABOUT IT.
Read Richards entire article here: WHY IS THE BANK FORECLOSING IF I AM DOING A SHORT SALE (OR LOAN MODIFICATION)?
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