A loan modification is a required step before you should try a short sale.
Knowing the rules of your lender and how they operate should give you an edge during the negotiating part. .
An excellent article and a must read if you have a USDA loan.
Why You Shouldn't Default on a USDA Loan (Residential)
Most importantly, try not to default on any loans. If your trying to obtain a loan modification with USDA, your chances of getting one approved are very slim. Why? USDA does not offer a loan modification program like Fannie Mae or Freddie Mac, they offer a Special Forbearance program for homeowners assistance.
How USDA's Special Forbearance Works: Your best negotiating time for your delinquent USDA loan is after 90 days past due and before 12 months in arrears, the allowable time by USDA. Your interest rate and terms of your loan cannot change with "Special Forbearance." Example, your mortgage payment is $1450.00 per month, your past due amount with the bank is $25,400, this includes finance charges, accrued interest and 12 payments in arrears. USDA will require a minimum partial payment of $8,000 applied towards the arrears to be qualified for the Special Forbearance program. If you are more than 12 months past due, more than likely the lender will decline your Special Forbearance request. In addition, if you have the inability to pay out of packet for the amount or partial amount of the arrears, your "Special Forbearance" request will be declined.
USDA recommends other methods to lenders rather than processing a USDA foreclosure, like short sale or applying for their "Special Forbearance." I don't get the "Special Forbearance" concept as a benefit to anyone who is delinquent on a USDA loan. Do you?
I recommend selecting a reputable real estate agent in your area to help you short sale your home and relieve you from your inability to pay your USDA mortgage.
For more information about USDA's Special Forbearance, click onto USDA
301 Clematis Street Suite 3000
West Palm Beach FL 33401
Office: 561.802.4445 or 866.885.5131