FHA Short Sale Changes effective October 1, 2013 – for NH and Massachusetts Short Sales
HUD announced new changes in their guidelines for short sales effective 10/1. One change has already been rescinded such as no DUAL agency, however some other notable changes and the government shut down have prolonged an already long process in short sale ATP’s and approvals.
Eligibility Requirements: To successfully complete a Preforeclosure Short Sale the sellers must meet the following requirements:
- They cannot list the property with or sell it to anyone with whom they are related or have a close personal or business relationship. In legal terms, it must be an “arm’s-length” transaction. Any knowing violation of the arm’s-length requirement may be a violation of federal law.
- Your mortgage must be in default, on the date the short sale transaction closes.
- Before closing, any additional liens against the property must be released. A lien holder who demands a payment to release its lien must submit a written statement, and an agreement to release the lien if that amount is paid.
- Financial Hardship Validation Requirement: For a standard preforeclosure sale, servicers must use a Deficit Income Test (DIT) to determine a homeowner’s financial hardship. The IRS Collection Financial Standards will be used to verify homeowners expenses not reflected in their credit report. Only owner-occupied properties are eligible for the standard preforeclosure sale.
- New Streamlined Short Sale Option: Homeowners eligible for a streamlined short sale may not be required to submit financial information or have a financial hardship. Principal residences, second homes, investment properties and service members who have received Permanent Change of Station (PCS) Orders are potentially eligible.
- Property Appraisal: The appraisal of your property should be completed within approximately ten business days. After the appraisal, the short sale file will be updated and prepared for review. In some cases, approval may be required by the investor and/or FHA, which may take more time.
- Cash Contribution: As a new condition, you might be required to make a final payment (sometimes called a cash contribution) before or at closing. This payment will reduce the deficiency balance.
- Seller’s Incentive Compensation: If you are an owner occupant, acting in good faith, and successfully selling your property, you may be eligible for an incentive of up to $3,000. If you are required to make cash contribution, you are not eligible for this incentive.
- Short Sale Contract Addendum:
- The revised FHA short sale addendum must be signed and dated by all parties. Under this addendum, all parties agree that the subject property must be sold through an arm’s-length transaction. An arm’s-length transaction is defined as a short sale between two unrelated parties that is characterized by a selling price and other conditions that would prevail in an open market environment. Also, no hidden terms or special understandings can exist between any of the parties (e.g., buyer, seller, appraiser, sales agent, closing agent, and mortgagee) involved in the transaction.
Our firm has seen another change that has affected some of our short sales. In addition to an appraisal, the servicers are ordering a BPO on the property if the property value falls within these certain parameters:
After its review of an FHA Roster appraisal, a mortgagee must submit a Request for a Variance through the Extensions and Variances Automated Requests System (EVARS) to approve a PFS transaction if one of the following conditions exists:
• The current appraised value of the property is less than the Unpaid Principal Balance (UPB) by an amount of $75,000 or greater; or
• The appraised value is less than 50 percent of the UPB. If neither of these conditions exists, a PFS appraisal (prepared by a FHA Roster Appraiser) will be considered acceptable if the “as is” value of the property is affirmed using a Broker’s Price Opinion (BPO) or Automated Valuation Model 4 (AVM) that is within 10 percent (10%) of the value assessed by the appraiser. The cost of an AVM and/or BPO is reimbursable. Upon determining and documenting that the appraised value is within the relevant range, the mortgagee may authorize the marketing of the property in accordance with Mortgagee Letter 2008-43. However, if the appraisal is deemed unacceptable because it does not meet the aforementioned criteria for acceptability, the mortgagee must:
• submit a variance through EVARS; and
• obtain approval prior to authorizing the marketing of the property.
So what does this mean? It means lengthier time frames to an already long process. If the appraisal on your property determines the above the servicer must THEN order either a BPO or a value variance through HUD and I’m not sure WHICH is more expedient.
Be prepared to wait on HUD short sales in New Hampshire and Massachusetts.