This question was prompted recently by a client who had questions about whether or not they needed to be behind on payments in order to qualify with their lender to sell their home short of what they owe. The simple answer is: “it depends on who the investor is.”
Before I comment on the topic, spend a few minutes watching this phenomenal presentation by Jonathan Jarvis, outlining the flow of money during the high times in the real estate market back in 2005.
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Now that you have somewhat of an understanding of what happened back then, you can see that the company to whom you make your payments may not necessarily be the company who actually owns your house. It’s likely that they simply process the payment, take a small portion as a processing fee, and send the rest to the real investor.
So, where does your mortgage payment go? It goes to the investor who actually bought your note.
(Note: It’s possible that the investor who currently holds the note paid far less than the value of the note because the original investor went bankrupt, which means they may stand to make money on the short sale, rather than lose money.)
Sometimes that investor requires that you be delinquent by at least 30 days before they’ll even consider approving a short sale on your property. Some investors are wiser than that, and they realize based on your financials, that you will soon be delinquent anyway so “what’s the point of waiting.” After all, if they recommend you fall behind, it will affect their cash-flow too.
Nonetheless, if the investor won’t pay attention to you, which is happening every day, then it’s possible that you may need to fall behind. This basically forces you into a strategic default instigated by the recommendation of the lender. It’s ludicrous, if you ask me.
