What are the minimum listing price requirements for a FHA Short Sale?

A property offered for sale as a FHA Short sale are to be listed for sale at no less than the “as-is” appraised value as determined by the current FHA appraisal.  Meaning, an appraisal will be ordered by HUD which will set the value of the property.

Does the borrower have to occupy the home to participate in a FHA Short Sale?

Lenders are authorized to grant reasonable exceptions to non-occupant borrowers when documentation indicates that the property was not purchased as a rental or used as a rental for more than 18 months, immediately preceding the approval into the FHA Short Sale program.

Are Seller Paid Closing costs allowed in a FHA Short Sale?

Up to 1% of the purchase price if the borrower’s loan is FHA insured.

What is the policy behind the FHA Short Sale program?

The FHA Short sale program allows borrowers who are in default which resulted in from an adverse and unavoidable financial situation to sell their home at the fair market value regardless of the amount owed.

Does the homeowner need to try a loan modification before participating in a FHA Short Sale?

HUD’s home retention alternatives such as Special Forbearance, Mortgage Modification, or Partial Claim must first be considered and determined unlikely to succeed due to the borrower’s financial situation before the homeowner can participate in the FHA Short Sale program.

Are strategic short sales allowed in the FHA Short Sale program?

Borrowers must maintain supporting documentation to demonstrate that the borrower does not have sufficient income to sustain the mortgage.  Under no circumstances shall the FHA Short Sale program be made available to borrowers who have abandoned their mortgage obligation despite their continued ability to pay.

Can the homeowner stay current on the mortgage and still participate in the FHA Short Sale program?

The answer to this question is yes and no.  A homeowner can stay current throughout the FHA Short Sale process, but at the time of closing the homeowner must be more than 30 days delinquent.  To stay current through the FHA Short Sale program, the homeowner must show that default is imminent.

Condition of Title required to participated in a FHA Short Sale?

Prior to receiving the Approval to Participate, the lender will obtain a title search or preliminary title report verifying that the title to the property is marketable.  If the lender determines that title issues, junior liens, or defects can be resolved, the borrower may be accepted into the FHA Short Sale Program and resolution of said issues may be pursued while the property is being marketed.

Can the borrower apply its FHA Seller Incentive to resolve junior liens?

Yes, the borrower can apply its seller incentive ($1000 or $750) to discharge junior liens.

Will the bank contribute funds to junior liens?

Yes, If no other source of funds is available after applying the borrower’s incentive amount, the lender may pay an additional $1,500 to satisfy junior liens.

Can I sell my home to a family member in a FHA Short Sale?

No.  The parties involved in a FHA Short Sale must be between two unrelated parties and be characterized by a selling price and other conditions that would prevail in a typical real estate sales transaction.

How does the bank determine if an offer is acceptable?

Regardless of the property’s sale price, a lender may not approve a contract if the net sale proceeds fall below the minimum allowable thresholds.  HUD has established guidelines for varying minimum net sales proceeds based on the length of time a property has been competitively marketed for sale.

1. For the first 30 days of marketing, lenders may only approve offers that will result in minimum net sale proceeds of 88% of the “as-is” appraised FMV.
2. During the next 30 days of marketing, lenders may only approve offers that will result in minimum net sale proceeds of 86% of the “as-is” appraised FMV.
3. For the duration of the FHA Short Sale marketing period, lenders may only approve offers that will result in minimum net sale proceeds of 84% of the “as-is” appraised FMV.
4. Lenders do have the discretion to deny or delay sales where an offer may meet or exceed the 84% of the FMV, if it is presumed that continued marketing would likely produce a higher sale amount.  However, the lender is still limited to 4 to 6 months after the date of the borrower’s approval to participate in the FHA Short Sale Program.

What closing costs are allowed in a FHA Short Sale?

Allowable closing costs shall include:

1. Sales commission consistent with the prevailing rate but, not to exceed 6%;
2. Real estate taxes pro-rated to the date of closing;
3. Local/state transfer tax stamps and other closing costs customarily paid by the seller including the seller’s costs for a title search and owner’s title insurance;
4. Consideration payable to seller of $750 or $1,000 (i.e., if such consideration is not used to discharge junior liens);
5. Up to $2,500 to be used for the discharge of junior liens if closing occurs within 90 days.  Within 90 days, the first $1,000 represents the borrower’s consideration and the additional $1,500 represents FHA’s consideration for a total of $2,500.  If settlement occurs after 90 days, the first $750 represents the borrower’s consideration and the additional $1,500 represents FHA’s consideration for a total of $2,250;
6. Up to 1% of the buyer’s first mortgage amount if the sale includes FHA financing.

What closing costs are not allowed in a FHA Short Sale?

The following costs may not be included in the net sales proceeds calculation, however, the seller may use their consideration of $750 or $1,000 for these settlement costs.

1. Repair reimbursements or allowances;
2. Home Warranty fees;
3. Discount points or loan fees for non FHA-financing; and
4. Lender’s Title Insurance fee.

Will the lender inspect the property?

Lenders have a responsibility to ensure that insured properties are not subject to abandonment or waste, and are required to conduct property inspections on the 45^th day following default if there has been no contact with the borrower.  Property preservation and protection (P&P) inspections are not required during the FHA Short Sale period if contact with the mortgagor is maintained, unless there is reason to suspect that the property has become vacant.

If a short sale is not successful in the FHA Short Sale program, can the lender pursue the homeowner for the deficiency after foreclosure?

No.  If the FHA Short Sale is unsuccessful and foreclosure occurs, borrowers who participated in the FHA Short Sale Program in good faith will not be pursued for deficiency judgments by the lender or HUD.

Should you have any questions about the services we provide or would like to begin working with the Short Sale Advocate, please contact us by Phone at 866-297-3883 or email at info@shortsaleadvocate.cc.