Applied for Forbearance and Was Offered Only a Short-Sale Option

[Susan McBride]

Hi.  I am currently unemployed and have my home on the market.  I have very little equity in it and my loan balance is around $400k.  It is one of the smallest, least expensive homes in a beautiful sought-after golf community, with the majority of homes being in the $600-900k range.  I priced mine at $430k, then dropped it to $415k.  It has only been on the market for 20 days.

I contacted my mortgage company and completed an application for a forbearance to give me time to sell it and/or find a job and catch up on the payments.  I am currently only one payment behind (May 2024).  The mortgage payment is $3,100/mo.  I just received a letter stating that the only option they would offer me is a short-sale and that I was not eligible for a forbearance since I indicated I was interested in selling the home.  But, I don't believe a short-sale is going to be necessary.  At the new price, I believe it will sell in the next 30 to 60 days.

I don't understand why the mortgage company would prefer to take a loss on a short sale instead of allowing me to defer a couple of payments in order to sell it and pay them back in full.

Can anyone explain this and do you have any suggestions as to how I should proceed?  Thank you!

[Chris Seveney]

@Susan McBride

It’s because of fractional lending.

First What is your interest rate?

So your loan is $400k. Now that you are behind the bank has to put this as a liability on their books and have $400k cash set aside

Banks only require 10% reserves typically so that $400k is stopping them from lending approx 3.6M in loans

3.6M at 7% is a big number and will lose a lot more from this than $10-$20k on your loan.