2. WHAT IS A SHORT SALE?
When a homeowner’s home is no longer worth what they owe and
they can no longer pay their mortgage or are facing a financial
hardship they can try to do a short sale with their mortgage lender.
Westchase Law, P.A. can work with you and your lender to get a
short sale completed for your loan by submitting the required
paperwork, offers and negotiations. Short Sales are very time
consuming, that is why we do not recommend for homeowners to
negotiate their own short sales.
In this packet we will go over the different investors that may own
your loan which ultimately make the final decision regarding the
short sale. There are:
FHA Loans
Fannie and Freddie Mac Loans
Private Mortgage Insurance (PMI)
Private Investors
Credit Unions
3. FHA LOANS
FHA GUIDELINES
Do you own a HUD-FHA financed home, and need to do a
Short Sale?
Here is a summary of the requirements do perform an
FHA-insured HUD Short Sale or "Pre-Foreclosure" Sale:
You must be delinquent 31 days or more delinquent
at the time of sale.
You must list the property with an un-related
Licensed Real Estate Broker
You must actively market the property for four
months (up to six).
4. FHA LOANS
FHA GUIDELINES
For the first 30 days of marketing, the short sale lender
(mortgagee) may only approve offers that will result in a
minimum net sale proceeds of 88% of the "as-is" appraised
Fair Market Value (FMV).
During the next 30 days of marketing, the lender may only
approve offers that will result in minimum net sale
proceeds of 86% of the "as-is" appraised FMV.
For the rest of the marketing time (60 days), the lender
may only approve offers that will result in minimum net sale
proceeds of 84% of the "as-is" appraised FMV.
5. FHA LOANS
FHA GUIDELINES
The property must be an owner-occupied, except for cases of job
transfer, death, divorce, job loss
There should be written proof of your decrease in income
showing inability to pay the mortgage, job loss, etc.
HUD will pay up to 1% of buyer's mortgage as part of closing
costs if the new mortgage is also FHA, plus reasonable "seller"
costs
HUD allows 6% Realtor commission
HUD will not pay for Home Warranties, points or lender's title
insurance
You must get approval to participate in the HUD Pre-Foreclosure
Sale Program in advance
Upon acceptance into the program, you will be given Approval To
Participate Form which will outline program restrictions
6. FHA LOANS
FHA GUIDELINES
HUD will give an incentive to the homeowner if the
closing of the short sale takes place within a certain time
frame of $1,000. Once that date passes the incentive is
reduced to $750
Remember, these guidelines apply to FHA-insured loans
only, and there may be some latitude in those
requirements. These guidelines are subject to change.
7. FANNIE MAE AND FREDDIE MAC LOANS
Fannie Mae and Freddie Mac Guidelines
Both Fannie and Freddie Guidelines are similar in nature as
to how they process the short sales and whether you qualify
under the HAFA/HAMP/HARP programs first before
proceeding with the short sale to avoid foreclosure. Pursuant
to their guidelines the consumer must be in default of their
loan in order to be considered for one of their programs.
Default meaning you must have missed your first 30 days
payment in order for the file to be considered for a short sale.
However, You do not have to be delinquent if you fall under
any of these extenuating circumstances:
•Death of a Borrower or Co-borrower
•Divorce or legal separation
•Illness or Disability of Borrower or Co-borrower
•Distant employment transfer
8. FANNIE MAE AND FREDDIE MAC LOANS
Fannie Mae and Freddie Mac Guidelines
QUESTION: DOES FREDDIE MAC PURSUE DEFICIENCIES?
Freddie Mac does not pursue deficiency on short sales. The Guide states that the
servicer must file the appropriate 1099 on short sales. If we cancel the debt (as we
do with short sales) we can't turn around and pursue it.
The problem seems to be that some of our servicers include information in their
approval letters that states that we may preserve our right to pursue a deficiency
on short sales. This is not true.
The Guide reference is
Chapter 55.3.1: IRS Form 1099-C, Cancellation of Debt (04/25/06) states that the
Servicer must report cancellations of Borrowers' mortgage debt on IRS Form 1099-
C, Cancellation of Debt, as required by the Internal Revenue Code. Under
55.3.1.d .6 it defines a short sale (not by name) as "A discharge of indebtedness
under an agreement with the debtor to cancel the debt at less than full
consideration. Freddie Mac will advise the Servicer if such an agreement is
reached with a Borrower.".
Once a debt is cancelled there is no longer a deficiency to pursue.
CHECK TO SEE IF THE PROPERTY IS OWNED BY FANNIE OR FREDDIE
PLEASE REFER TO THE BELOW WEBSITES:
WWW.FANNIE.COM AND WWW.FREDDIE.COM
You must have the social security number for Freddie’s lookup
9. PRIVATE MORTGAGE INSURANCE
PMI GUIDELINES
Many consumers are unaware that they are carrying Private Mortgage
Insurance with their loan when they first purchased their property. In the
event they are paying mortgage insurance with their loan, we are facing
an approval process from the MI company in order to complete the short
sale. The MI company may not participate in the HAFA/HAMP/HARP
Programs offered to the consumer and can deny the request for either
program. The MI companies have an agreement with the servicing
company (lender) which states that they have the right to negate or
proceed forward with the short sale or pay out the claim. Many times
the insurance company, if they see that the consumer have the ability to
pay, may require a promissory note in the form of 0 interest, with
payments up to 120 months, or a cash contribution to make the
deficiency amount be waived.
It is important to check before proceeding with the short sale whether we
are facing a third party approval from the MI company as you may be
faced with a difficult decision to make as to whether you will sign a
promissory note or provide the cash to contribute.
10. PRIVATE INVESTORS
PRIVATE INVESTOR GUIDELINES
Private Investors are not governed by Fannie or Freddie.
Private Investors service their own loans and are the source of
their own funds, and they may or may not be backed with
insurance. This means that they can control what the realtors
make as far as their commissions and they can control how
much closing costs they are willing to pay to any other lien
holder on the file.
On the other hand, some private investors (lenders) who are in
control of their own loans will approve the short sale a lot
quicker than going through Fannie/Freddie and other programs.
Bottom line is that each Investor is different in how they work the
short sales.
11. CREDIT UNIONS
Please be advised that most credit unions will not waive any
deficiencies which will force the consumer to file for immediate
bankruptcy as they will not cooperate with any lenders or
government programs.
We have come across that the credit unions will look at the
situation at hand but the hardship will have to be substantial in
order to get the deficiency waived.
12. DO I QUALIFY FOR AN INCENTIVE PROGRAM?
There are many incentive programs that have been roaming
around with many success stories. Each program has
similarities and differences depending on the servicing
company. The main question is, do you qualify? It will depend
on the servicing company and your financial situation.
Below are the different programs out there:
Home Affordable Foreclosure Alternative (HAFA)- This is a
government program that many lenders are participating in. Each
servicing company that participates may have different guidelines for
this program but some do stay the same:
• The homeowner has to face a significant financial hardship to
qualify.
• Once approved the bank will waive their right to seek a
deficiency judgment against the homeowner and settle the loan
for “less than the amount owed.”
• The homeowner may qualify to receive relocation money of up
to $3,000 if they live in the property. If they have a tenant living
in the property the tenant will receive the relocation money.
13. DO I QUALIFY FOR AN INCENTIVE PROGRAM?
Bank of America Cooperative Short Sale- This is another
program that Bank of America is giving out that is very similar to
that of the HAFA program. It was mostly created for the sellers
that had investment properties.
• The seller has to face a significant financial hardship to
qualify.
• Seller may receive up to $2,500 incentive for the
completion of the short sale.
• Once the short sale has closed the bank will waive their
right to pursue a deficiency judgment against the seller.
Bank of America Incentives- Right now Bank of America is giving
an extra incentive to those homeowners who qualify for either the
HAFA or the Cooperative Short Sales. These incentives range
from $3,000-$30,000. Bank of America is only providing these
programs for a limited time so the sooner you start the short sale
the better.
14. DO I QUALIFY FOR AN INCENTIVE PROGRAM?
FHA Incentive- FHA loans are worked differently and they also
give an incentive once the transaction closes. Details of FHA loans
is explained with more detail in this packet under FHA LOANS.
Homeowners will receive up to $1,000 if the closing of the
property takes place within a certain time frame. If it closes
after the requested date the homeowner will only receive
$750.
