Short Sales Program for FHA Loans
In February 2009, new rules were announced for those who cannot pay their mortgages, who want to make a Short Sale on their property, and whose original mortgage was backed by HUD, VA, FHA and other government entities.
The Pre-foreclosure Sale Program allows a Mortgagor in default to sell his or her home and use the sales proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount owed.
FACTS
• Outright sale of mortgaged property to a third party and must be an “arms length” transaction.
• Outstanding indebtedness includes; unpaid principal balance + delinquent interest + Partial Claim (if applicable).
• HUD will pay $750 – $1,000 incentive to the Mortgagor.
• HUD will pay an additional amount up to $1,500 for the discharge of junior liens after the Mortgagor’s incentive has been applied.
• HUD allows all reasonable costs of the sale including up to 6% sales commission, transfer tax stamp and other customary closing cost.
• HUD allows up to 1% of the buyer’s mortgage amount for closing costs if the transaction involves a new FHA-insured mortgage. Certain categories of costs are excluded.
• Sale amount must be between 84% and 88% of the “As-Is” appraised Fair Market Value depending on the number of days since application.
Some restrictions exist on the condition of the property and how repairs are valued. Check out the official site for details.
ELIGIBILITY
• The property must be owner-occupied, no “walk-a ways” or investment properties, with some exceptions on investments.
• The Mortgagor must be 31 days or more delinquent at the time of the Preforeclosure Sale closing.
• The Mortgagor must provide documentation substantiating a reduction in income or an increase in living expense, and documentation that verifies the Mortgagors need to vacate the property (if applicable).
Under no circumstance should the Mortgagor be encouraged to default on their mortgage for the purpose of participating in the Pre-foreclosure Sale Program.
Sharing this information with all of you means that more Short Sales transactions will complete, and that Loss Mitigation negotiators will be more fair in our transactions. As I mentioned in an earlier blog, I am still negotiating a Short Sale since September, 2008, with one of the “Big Boys” who instead of making a price reduction when they needed to in order to make the transaction happen, they instead increased the sales price of the property.
Let’s continue to help people, and please share all the comments and knowledge you have and tell me your stories. Together we can make this market work for us all.