Watching The Foreclosure Clock

I have a potential short sale buyer for my second home in Florida but the bank started the foreclosure process since I am behind on my payments.

I was told that the bank cannot start foreclosure due to the fact that there is a short sale in progress.

I don’t want to foreclose on the property since it will be more negative items on my credit.

What do I do?

Joe

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Hello Joe,

The statement “that the bank cannot start foreclosure due to the fact that there is a short sale in progress” is far from a truism. 

Pooling and servicing agreements for securitization trusts commonly require a loan to be put into foreclosure within sixty-days of default.  That might mean the lis pendens and foreclosure complaint arrive around the fifth month of delinquency. 

My hope is always that the foreclosure complaint is answered and the bank does not proceed directly to summary judgment and sale date.  But regardless, back to your question, you need to know that the foreclosure department is a separate department from loss mitigation, so you have to make sure the negotiator is aware of the foreclosure clock on your short sale submission.

When you say ‘the bank started the foreclosure process’ what do you mean?  It’s a long process these days.  The bigger issue in my mind is that the short sale might take a few months and that buyer may not hang in there.  Additionally, the initial offer needs to be a relative low one or else the bank sees a high offer and thinks the property is a gold mine.  Then, when that buyer leaves (they may not in your case but generally speaking they only want to wait 30 days to close), the lender wants you to get another buyer to step up to the plate at the same or higher price – and this in a down market.

These are the more subtle problems with short sales.  Yes, you’ve got to watch that foreclosure clock; but, the bigger problem is you’ve got to find the right kind of buyer.

Thanks for the questions and hope this helps.

Paul