Loss Mit Services

FHA Short Sale Update May 2017

Posted on 05. May, 2017 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

FHA short sales require 15 days Active on the MLS AFTER Approval to Participate (ATP) is issued.

It' just keeps getting harder and harder to work with FHA short Sales

The FHA Preforeclosure Sale Program aka a FHA Short Sale, is already the most complicated, Red Tape Laden, program there is for short sales.  But HUD just keeps making it worse.  Over the last few years HUD has continued to add more and reason to deny struggling homeowners the ability to do a short sale, or at minimum, making it maddeningly complicated to do so.

For example, any of the following reasons can get you denied for a short sale, unless a Variance is approved to the rule; Non-Owner Occupancy, Property Rented over 18 Months, Surplus Income Above the Expenses, Mortgage Payment too Low compared to Gross Income, Approved for a Retention Option, Weak Hardship Reason, and the list goes on.

Recent Changes to the 15 day Marketing Rule.

For a couple years FHA has had a rule that the property must be Actively listed on the MLS, at the FHA appraised value, for at least 15 days, AFTER the ATP is issued, before any offer will be reviewed.  The ATP is the Approval to Participate (ATP).  This is the seller's approval into the preforeclosure sale program.  It is a "pre" approval to do a short sale.  Once that is issued the financial review of the seller is over, the appraisal amount is disclosed and the 120 day approved marketing period starts.  This is when the min 15 days of marketing starts also.  EVEN IF YOU ALREADY HAVE AN OFFER!

For the last couple years HUD has been approving variances for this rule.  A variance is when HUD approves of an exception to their rules.  The previous policy with HUD had been that so long as the property had been marketed for at least 15 days before an offer was accepted, even if that was prior to the ATP being issued, they were approving the exception.  HUD now says they will no longer approve this variance.  I have heard this from a couple larger mortgage servicers as well as directly from a HUD escalations specialist at the HUD National Servicing Center, which is where we escalate FHA short sales if the bank is not doing things correctly.

So Now What?

Being forced to list the property as ACTIVE on the MLS, if you already have an offer in place, causes some issues for the agent.  It is a violation of MLS rules to list a property as being ACTIVE if you are already under contract with a buyer.  If you wait to list the property until the ATP is issued, then you have no issues.  But that may waste a few months of potential marketing time during the pre-approval process.  So then, disclosing to the buyer that the property will need to be reactivated on the MLS is likely a good idea, should you receive an offer prior to the ATP being issued.  What you do when you put the property back on ACTIVE is up to you and speaking with your Broker may be a good idea.  The cleanest thing would likely be to terminate the contract, put it back on ACTIVE and then execute a new contract with them after the 15 days.  Then there is no gray area.  But if you have had that offer for quite some time, that may be uncomfortable for the buyer.  So each case may be different.

Just be Aware of this Policy.

Notable Exception.

As with most FHA short sale rules, there are exceptions.  There is one notable exception to the above 15 day marketing rule. That exception is on files that are already past "First Legal Action".  First Legal Action is when the file has been sent to an attorney to file foreclosure and that attorney has delivered to the state Marshal, the package to serve the homeowner with to start the foreclosure.  If the file is past this date, it is not eligible for the pre-approval or the 120 day ATP marketing period.  Since an ATP with 120 day marketing period cannot be issued, it is not possible for the property to be marketed for 15 days after the ATP is issued.  So long as the property was listed for 15 days, it can be reviewed for approval.  So files that are already in foreclosure, do not have this 15 day after the ATP issue.

One of the very first things we do with a new short sale file is determine the loan type.  This way if there are issues or concerns with the file, we can let everyone know and we can all plan accordingly for the transcation.

Sean Wilder

Loss Mit Services