Sellers if your mortgage is FHA insured the process for a short sale is very different. Make sure you work with an agent who knows the difference and can guide you through the process.
FHA guidelines require a seller to get their home approved into the FHA Pre-Foreclosure Program prior to listing the property. Sellers should work with thier REALTOR to contact the servicer (the company you pay the mortgage to) and request to be considered for a short sale. The servicer will provide the necessary documentation and complete an FHA appraisal on the property.
If you would like more informaiton on the HUD Pre-Foreclosure (Short Sale) Program, please contact me for a complete guide.
You can determine if your loan is FHA by looking at the bottom of your Deed of Trust , or ask your REALTOR to order a property profile from the title company which will have a copy of this document in it.
Once the servicer has obtained the initial documents and ordered an FHA appraisal they should be able to issue you the “Approval to Participate” This clearly defines the FHA Fair Market Value, the deadline to get a contract for sale, minimum net proceeds that FHA will accept and the amount of the seller’s incentive and what date you have to close in order for the seller to get that money.
From the issue date on the Approval To Participate you are given a specific date to get the home under contract. If you get the sale into contract within the first 30 days FHA will require the sale to net 88% of the FHA appraised value. If the sale contract comes between day 31 and 60 FHA requires a 86% net. Day 61 to the expiration of the Approval To Participate FHA will allow the offer to be 84% of the appraised value.
Once you list the property you basically have an approved short sale if the offer will provide the appropriate net to FHA. There is one other major thing that needs to be remembered. FHA will only allow up to 1% of the new buyer's loan amount as a closing cost credit if the buyer of your home is doing a new FHA loan. Many buyers in our market are needing 3% closing cost assistance from the seller. That will not work on this type of sale.
Once an offer is received that meets the required net, it is submitted to the servicer and an Approval is issued. This is what is need to close the short sale.
Sellers are offered an incentive on FHA short sales. If you successfully close the sale within 90 days of the Approval to Participate you can recieve up to $1000 incentive which can be applied to paying off a second lien or other closing costs that FHA doesn't allow, or if there is neither of these you get the money for relocation assistance. If it does not close in that 90 day window the amount drops to $750.
Here is where things get tricky. You may have a servicer (who you pay your mortgage to) that is not up to speed on FHA guidelines or has a large back log of files. They are still required as an FHA servicer to follow FHA guidelines. You and your REALTOR can contact FHA directly at their national servicing deparment and file a complaint. The number is 888-297-8685. They take your information and create a "work ticket" which is then assigned to a local field officer who contacts the servicer and resolves the issue.
Contact me today for a complete guide to FHA Pre-Foreclosure (short sales.)
