2009 FHA/HUD Pre Foreclosure Sale Information (Short Sale)

Bet you didn't know your decision to use FHA financing can help during times of a crisis...

 On December 14, 2008, the Department of Housing and Urban Development (HUD) released Mortgagee Letter 2008-43 to update lenders on a variety of revisions and additions to the already disjointed FHA Pre-foreclosure Sale guidelines (PFS; short sale) introduced this year.

Although Assistant Secretary for Housing – Federal Housing Commissioner Brian D. Montgomery acknowledges in his introduction to Mortgagee Letter 2008-43 the “…devastating effects on families and neighborhoods,” the recent foreclosure crisis has caused, the new revisions outlined by HUD could potentially make the PFS process more difficult for distressed mortgagors across the United States unless they are represented by the most qualified professionals who have been kept apprised of all of the latest changes in HUD guidelines.

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2008ml.cfm

· Minimum List Price Requirements – “Properties offered for sale under the PFS program are to be listed for sale at no less than the “as-is” appraised value as determined by a current FHA appraisal, obtained and reviewed by the mortgagee.”

o Last year it was FHA’s instruction to list a FHA PFS before the FHA appraisal had been performed. This latest revision indicates the realtor needs to wait for the appraisal to be completed before they market the property on the MLS.

· Tiered Net Proceeds Requirement – The longer the property is competitively marketed the less net sale proceeds FHA will approve of the “as-is” appraised fair market value (FMV).

o Previously FHA stipulated that the FHA Appraisal FMV had to be within 63% of the mortgage balance in order to review an FHA PFS. This is no longer the case as FHA attempts to acknowledge rapid market decreases across the nation.

· Seller Participation Requirements – To acknowledge their decision to participate in the PFS Program, the seller needs to sign Form HUD-90045 (Approval to Participate) and send it to the lender.

· Required Listing Disclosure – All agents submitting an FHA deal must include the following cancellation clause in their Listing Agreement: “Seller may cancel this Agreement prior to the ending date of the listing period without advance notice to the Broker, and without payment of a commission or any other consideration if the property is conveyed to the mortgage insurer or the mortgage holder. The sale completion is subject to approval by the mortgagee.”

· Net Sale Proceeds – Right when we had all become accustomed to the standard 82% net sale proceeds for FHA deals, HUD changed their guidelines on a servicer’s delegated authority to approve a short sale. The minimum allowable threshold for any offer made on an FHA insured deal goes as follows:

o If the property is sold within the first 30 days of marketing (from the time the seller signs the Approval to Participate forms), FHA will accept a minimum net proceed of 88% of the “as-is” appraised FMV.

o If the property is sold within the next 30 days of marketing (from the time the seller signs the Approval to Participate forms), FHA will accept a minimum net proceed of 86% of the “as-is” appraised FMV.

o For the duration of the PFS marketing period (from the time the seller signs the Approval to Participate forms), FHA will accept a minimum net proceed of 84% of the “as-is” appraised FMV.

· Allowable Settlement Costs – Just to name a few:

o Sales commission not to exceed 6%;

o Real estate taxes prorated to the date of closing;

o 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;

o Up to 1% of the buyer’s first mortgage amount if the sale includes FHA financing.

· Mortgagor Consideration – The seller in an FHA PFS receives a monetary consideration if they close the property within their guidelines. It’s no lie. Mortgagors who exercise their option to complete a PFS are entitled to a consideration of $750. If the closing occurs within 3 months of the approval to participate, the mortgagor will be entitled to $1,000

If the PreForeclosure Sale (PFS) is unsuccessful than most lenders will encourage the participant to complete a deed in lieu (DIL). In most cases, as a result of participating in the PFS program lenders will forgive any deficiency and typically will not file a deficiency judgement against the borrower.

The key is to start early, contact a HUD certified counselor, in Northeast Indiana contact Community Connections at 260.424.1831 for Pre Foreclosure counseling, this is a FREE service.

For Additional Information contact Steve McMichael of Imagine Real Estate at 260.748.3000

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