For FHA Loans Only
Interested in selling your house as a short sale?
What you MUST know about short sales on FHA loans
Every short sale listing is different, mainly because each lender has their own way of handling things and their own set of rules regarding short sales. But in addition to different rules with each lender, there are also special requirements and special benefits for FHA loans.
The Dept of HUD published Mortgagee Letter 2008-43 on December 24, 2008, which details the new procedures for the FHA Pre-Foreclosure sale (PFS). The PFS is what FHA calls their Short Sale. If a seller is shorting an FHA loan, here's some of the major things they need to know:
- HUD used to have a rule that required the property to appraise for at least 63% of the indebtedness , this is no longer in affect.
- HUD used to accept 82% of the appraised value as their net--now it is 88% if it sells within 30-days marketing time, 86% if it sells in 60-days, and 84% after 60 days.
- HUD will now pay 1% of buyer's closing costs if the new buyer is obtaining FHA financing.
- HUD has now authorized Mortgagees to grant reasonable exceptions to non-occupant mortgagors when documentation indicates a property was not purchased as a rental, or used as a rental for more than 18 months.
- Prior to accepting a discounted offer, HUD requires evidence of competitive marketing from the selling broker to be presented and mortgagees are to retain this documentation in the claim review file.
If you are a seller who has an FHA loan, make sure your Realtor understands the nuances of the FHA Short Sales guidelines. It can make the difference of making the offer work and getting approval from the Lender.
More importantly, to a seller, it can mean the difference between being responsible for a deficiency or not!
More details can be found on the U.S. Department of Housing and Urban Development
website. The site provides many helpful links for those in financial trouble. Remember, these guidelines apply to FHA-insured loans only, and there may be some latitude in those requirements. These guidelines are subject to change.