I have always been told that when a seller wants to do a short sale he must stop paying the mortgage. A friend of mine had a parcel of land in Central Florida which he called the bank directly for a short sale. The bank sent him the package but he continued paying the loan. The Lot was sold under the short sale and his credit score did not change. He told me it shows paid less than owed under his credit report.
Is anyone aware of this? As mentioned I thought in order to qualify for a short sale you had to stop paying. Is a lot loan done differently?

There are a lot of myths swirling around Short Sales. This is one of them I believe. That paperwork that the lender sent him asked for detailed explanations as to why they should accept less than full payment and why your client could not continue to fully pay the note. Vacant land is ripe for speculation and vacant land prices have fallen (at least here) faster than home prices. This may be why they accepted the Short Sale. If lenders don't want to hold properties with structures on them, why would they want to hold a vacant parcel?

Without knowing why your client needed to ask for a short sale, it's hard for us to comment. I do know of several properties here that have been Short Sales where the owners have continued to make payments and the Short Sales has been approved. Ultimately, it's up to the lender/investor.

He has several investment properties, both land & single family homes. He is unable to afford all of them. This is why he did a short sale, he just told me this recently.
I guess the best bet would be to get the facts from each lender. I was just surprised about his credit not hurting & payments continued.

There are general rules and guidelines to shortsales but no 100 percent rules.

The reason you have to show late payments sometimes is the the actual investor that owns the mortgage would SUE the servicing company if workout protocol was not followed.

Can you imagine explaining the a mortgage investor that you as a servicing company agreed to a short sale and the loan has not even defualted yet and is still performing???

I think your situation had more to do with a lot loan and the seller being an investor.

They are all different...

Keep in mind that just a few years ago, things were appreciating so fast, the bnks didn't need to do short sales. An agent friend of mine had a short sale go through earlier this year with out a missed payment. It's important to remember all banks are different and live by their own rules.

I think most lenders would consider the short sale as less costly to them than foreclosing if the owner were to become unable to pay the agreed note. The first evidence of this is often the late or missed payments. Even so the borrower may be able to show that future payments will not be possible although the payment record may be current (for example notice of a pending job loss or a large medical bill about to impact cash flow).

When people say that the mortgage payments MUST be behind, that is completely untrue. Of course it looks a bit stronger in the seller's favor that they cannot afford the property anymore, but it is not always required.

When the seller explains the hardship to their lender, many of them will take into consideration any future issues that may arise. If the lender knows that the homeowner will not be able to continue to make payments, then that is what matters most. If they truly see that the homeowner is heading towards foreclosure and it is inevitable, then they will still work with the short sale.

Exception to the rule: There are some lenders that are still completely stubborn and will not consider a short sale unless the payments are behind. This is not the common case though.