If you are the holder of a FHA mortgage and if you’re currently having trouble making your monthly mortgage payment, or one who is already in default, you’ll be happy to learn that FHA short sales are some of the easiest to process. The reason FHA short sales tend to be easier than conventional short sales is because these sales are governed by a systematized process defined by HUD (Department of Housing and Urban Development) that lenders must strictly adhere to when processing these short sales. Here are a couple of things you need to know if you’re considering an FHA short sale.
First, FHA requires at least one of the homeowners to be occupying the home at the time of short sale, HOWEVER, this requirement can be waived due to severe hardship that causes the seller to vacate. In addition, the seller MUST be at least 31 days delinquent on the loan.
The Seller MUST be approved into the pre-foreclosure program before the lender may consider any offers on the property. This approval is evidenced when the Seller receives HUD form 90045 from the loss mitigation department at the lending institution. This form is titled “Acceptance Into the Pre-Foreclosure Sale Program.” Within 30 days of receiving the request for the short sale, and prior to the release of the acceptance form HUD will order a Broker Price Opinion (BPO), that is an appraisal of the property. The acceptance form will reveal the property’s appraised value and the minimum new proceeds HUD and the bank are able to accept in order to approve the sale!
The minimum NET PROCEEDS (not purchase price) is the amount the HUD will be willing to accept after all expenses associated with the sale are covered. This number is based on “As-Is” Appraised Value AND Lenght of Time From Date of Approval: Less than 30 days = 88% 30-60 days = 86% 61+ days = 84%.
That is, the net proceeds that the lender will receive at closing MUST be no less than the percentages referenced above as a portion of the appraised value (as referenced on HUD form 90045). This means that in order to receive approval, you MUST ensure that all expenses associated with the transaction, that is; Realtor sales commissions, Closing Costs, liens, judgments, seller incentives, prorated taxed, etc. have been accounted for before reaching the 84-88% threshold. The lenders will not take a penny less!
Once accepted into the pre-foreclosure sale program, HUD gives the seller 90 days to sell their home under the terms of the agreement. The lender is required to postpone all foreclosure proceedings 90 days past the date of approval in the meantime.
READY FOR MORE GOOD NEWS? FHA will provide a seller incentive of up to $1,000 to the Seller if they are successful in closing the transaction within the 90-day period. That’s right, the Seller will receive a reward for their participation in the program for not forcing the home to be repossessed through foreclosure! This is reduced to $750 if the property comes under contract in the 90-day period, but doesn’t close until after that period – EXTREMELY IMPORTANT!
In addition, FHA will allow up to $2,500 as a payoff to a 2nd mortgage or other junior liens encumbering the property. However, the seller will then be required to forfeit the $1,000 incentive to the 2nd lender/junior liens. The incentive is applied first before applying the additional $1,500.
There are some closing costs that the lender will not pay on behalf of the seller at closing including; a home warranty, delinquent HOA dues, HOA transfer fees or the water/sewer escrow. The incentive noted above could be used for these costs.
HUD ABSOLUTELY WILL NOT allow any seller paid buyer closing costs if the buyer is receiving conventional financing. If the Buyer is obtaining FHA financing, then FHA will allow a MAX of 1% seller paid buyer closing costs. The buyer cannot “bid up” the purchase price to cover seller concessions on an FHA short sale. HUD simply will NOT allow it. The incentive noted above CAN be used for seller concessions. So, any buyer that needs seller concessions over $1,000 will not be able to purchase your home via the short sale.
FHA short sales are very different than conventional short sales and the strategies for ensuring their success is also unique. Most Realtors do not even know about the FHA incentive and the way this works and as with all short sales, you will want to make sure the Realtor you select to assist you with the sale of your property is a Short Sale Specialist. We at The Opland Group constantly strive to keep up to date on all the changes in how each bank and investor works so we can best serve our client and ensure the success of their transaction.
If you are a homeowner who feels they might qualify as a short sale candidate and are looking for an agent who specializes in these types of sales, or just need guidance, please give us a call at 614.332.6984 as we’d be happy to assist you in exploring this option and locating a buyer for your home!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235