Monday, October 31, 2011

Got an FHA Loan? Want to do a short sale on your Sacramento home? Here are the steps...

I have been doing a bunch of FHA short sales lately, and I have to say I enjoy doing them. No, I'm not crazy! It just so happens that the US Department of Housing and Urban Development (HUD), the federal agency that handles the FHA programs, has created a short sale process that loan servicers are required to follow...

Loan servicers (think Bank of America, Wells Fargo, Chase, GMAC, etc) must follow the steps of the HUD "Pre-Foreclosure Sale" process. That's right -- they MUST. Which is really nice for a real estate agent that does A LOT of short sales, predictability in what is generally a pretty unpredictable process is a luxury.

A few general criteria if you have an FHA loan on your Sacramento area home and are contemplating selling via a short sale;
  • FHA usually requires that the home be owner-occupied. If you must move out of your home because of a hardship that requires you to relocate, such as a job transfer, divorce, to care for a sick relative, etc, there are some exceptions.
  • Theoretically, the seller must be at least 31 days delinquent on the loan. Let me clarify that in order to negotiate the short sale, the borrower can be totally current with the monthly mortgage payments. It is when escrow closes on the sale that you must have missed one payment...and (shh!), I have gotten an FHA short sale completed where the seller wasn't technically 31 days late.
  • There is a FHA Pre-Foreclosure Sale application that must be completed and filled out. The borrower will need to know the FHA "case number" for the property. This can be found on the original loan documents. If those aren't handy, you can call FHA's help line at 800-225-5342 and find out.
  • You will also need to collect your bank statements, paystubs, write a hardship letter, write an explanation regarding the occupancy status, and if utilities are on and being paid, etc.
  • FHA conducts a full-blown appraisal of the house to determine value.
  • Once all of the document and appraisal conditions have been satisfied and hardship determined, FHA issues a form 90045 -- Approval to Participate in the Pre-Foreclosure Sale.
  • FHA Form 90045 will disclose the appraised value. The NET proceeds to the loan servicer generally must be greater than 88% of this value, taking into account paying all of the costs associated with the sale, including real estate agent commissions, title insurance, escrow fees, transfer taxes, etc.
  • Often times, with a timely close of escrow, the seller can receive a "relocation incentive" of up to $1,000 at the close of escrow, paid from the sales proceeds of the house.
The seller MUST be approved by FHA for the pre-foreclosure sale program before the loan servicer can review or approve any keep that in mind. Approval timeframes after receipt of the 90045 vary per the loan servicer, but I'd estimate 1-3 weeks.

Also if you are a buyer of an FHA short sale property, FHA does not approve any seller credits to the buyer of an FHA short sale UNLESS the buyer is obtaining a new FHA loan -- and in those cases the credit for closing costs is limited to 1% of the purchase price. Also, the property is sold as-is, and the FHA will not cover the cost of any buyer home warranty. So buyers, prepare yourselves for that reality.

So...if you are contemplating doing a short sale on your Sacramento area home and have an FHA loan, be sure to select a real estate agent that is intimately familiar with all of the steps of the process. I would be happy to explain the process in more detail for you and assist you with your transaction. Of course I am happy to do the same for any non-FHA short sale you want to do as well.

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