Loss Mit Services

FHA says 40 payments behind is the limit for Short Sales!

Posted on 25. May, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

I have said it many times.  There are more reasons a seller can be denied for a short sale on an FHA loan than on any other type of mortgage!

Unlike many of FHA's rules for short sales, this one is simple and straightforward.

Once the loan is 40 payments delinquent, a short sale is no longer an option.

Simply put, FHA will deny any request for a short sale if the file is 40 payments or more behind.  That sounds like a long time and you could think that the homeowner "dragged it out" long enough.  The truth is that many homeowners can find themselves in this situation because they have been struggling for years to try to save the home.  Having gone through years of running around with their lender and still not having a resolution, they find themselves this far behind on payments and then someone finally suggests a short sale.  But by then it is too late if the loan is FHA.

Another challenge with this rule is that many of the mortgage servicers do not know it. Chase for instance, will have you go through the whole application and review process which can easily take 4 months and not till they send it to FHA for the final approval, do they learn that FHA rejects it for being over 40 payments behind.  This is partially due to how convoluted the FHA guidelines are.  This particular rule is actually not written in the guidelines.  But if you call the HUD National Servicing Center, they will confirm that it is, in fact, a rule.

So the take away here is that you need to find out what kind of loan you are working with and the current status of payments.  If it is FHA and over 40 payments behind, a short sale is not an option.  If it is FHA and nearing 40 payments behind, then you have very little time to get a short sale done.

As always, feel free to reach out to me with any questions.

Sean Wilder

Loss Mit Services

860-265-3727

Short Sales and Home Inspections… When to inspect?

Posted on 16. May, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

It is becoming more common for buyers to inspect prior to submitting to the lender.

In a typical real estate sale, the buyer does their home inspection within 1-2 weeks of the seller accepting their offer.  However, on short sales in CT, it has been most common for buyers to want to wait to do their home inspection until after the short sale approval has been received.

Times have changed.

It is becoming more common for the buyer to elect to do their home inspection within the typical 1-2 weeks after the offer is accepted by the seller and prior to the initial offer going to the short sale lender for a decision.

The reason is, it makes more sense now than ever for the buyer to make that investment earlier.

It has always been a better situation for the seller if the buyer does the inspection prior to waiting a few months to get short sale approval.  For the seller, the reason it is preferable is that if the buyer elects not to proceed with the purchase after conduction the home inspection, the seller would have more time to find another buyer if the inspection was done earlier in the process.  This is because most sellers needing a short sale are also facing foreclosure.  So they only have some much time to get it done, prior to foreclosure.

For the last several years, it was hard to find a buyer and especially for a short sale.  With a stable or declining interest rate environment and plenty of inventory to choose from, there was not much incentive for the buyer to spend the money on a home inspection until the short sale was already approved.  That is because if they decide not to proceed with the purchase after the inspection, it was unlikely their interest rate for their mortgage would be higher now than it was a couple months earlier, and there were still plenty of other houses to choose from.

But times have changed. With mortgage interest rates rising and inventory low, the buyer has much more incentive to determine if they want to proceed with the purchase, earlier in the transaction.  If they wait a couple months for short sale approval and then back out of the sale, the interest rates may have risen costing them more money for the next property and the perfect property for them may have sold in the meantime to someone else.

So here are a few reasons why it makes sense from the buyer's perspective to inspect at the beginning.

1. If the results are bad, they are out looking for another home much sooner.  If they waited, homes available now may no longer be available so they may miss the perfect house for them.

2. If they wait and back out later, they may be faced with higher interest rates either costing them more for the same loan amount or causing them to qualify for a lower purchase amount.

3. If there are issues with the property, and the buyer wishes to purchase but wants to renegotiate the purchase price, the lender has not already seen the higher price that the buyer first offered.  It is much less likely to get the bank down on their price after they have already approved a higher offer.  Going to the bank with the reduced offer up front has a better chance of success.

4. The inspection report and if needed repair estimates can be shown to the bank's appraiser or BPO agent to justify the buyer's offer.  This increases the chances that the bank agrees that the buyer's offer is current as-is market value.

Ultimately the decision to inspect early or later is the buyer's decision.  However, with more short sale properties receiving multiple offers, it is also a negotiation point for the seller during those negotiations.  A buyer willing to inspect at the beginning is much more desirable to the seller than one not willing to do so.

As always, if you have questions on a short sale I am always available to assist.

Sean Wilder

Loss Mit Services

860-265-3727

Why you SHOULD NOT rent a home with an FHA Loan!

Posted on 19. Apr, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

Renting a property that has an FHA Mortgage can get you rejected for a Short Sale!

The FHA Preforeclosure Sale Program has the most RED TAPE of any short sale guidelines.  There are more rules that can get a seller denied for a short sale than with any other type of mortgage.

For this article, we will just be discussing the Owner-Occupancy requirements that FHA has for short sales.

To begin, let's talk about the 2 sets of guidelines that FHA has for short sales.

1. Streamlined

2. Standard

Streamlined - To qualify for this set of rules, the loan must be at least 90 days late and the FICO score for all borrower on the loan must be below 620.  Under the streamlined guidelines, it is not required that the property be owner-occupied.

Standard - If the file does not qualify for streamlined review, it will be reviewed under the Standard Guidelines.  These guidelines require the property to be Owner-Occupied to qualify for a short sale. FHA does allow for the servicer to approve "reasonable exceptions" for the property being non-owner-occupied "PROVIDED IT HAD NOT BEEN RENTED FOR OVER 18 MONTHS".

I have had numerous files where FHA has approved exceptions for the property not being owner-occupied.  So long as FHA does not deem the reason for the property being vacated to be unreasonable, and the property was maintained, they may still allow a short sale. However, I have not seen a single approval from FHA on an exception to their 18 month rental rule. I have also had conversations with several short sale negotiators at the banks we work with commonly and with escalation representatives from HUD, and none of them had seen an exception approved to the 18 month rule either.

So if the property was rented for more than 18 months, regardless of the reason for having moved, will get the seller rejected for a short sale.  The rest of their situation or reasons make no difference.

I have been called far too many times by homeowners desperate to get rid of the property but who were never informed of the possibility of a short sale, when they first moved from the property.  Then it is over 18 months later and they are again trying to sell, after having rented it.  Only then do I get the call and have to inform them of this rule.  This is not something they were ever told before.  If they had only had tried to short sell when they first moved, the chances of success would have been much higher.  Unless they qualify for the Streamlined Guidelines, they cannot be approved for a short sale.

So my advice is, if you have an FHA mortgage, DO NOT RENT THE PROPERTY. If you need to short sell the property, then do so.  But do not rent it because doing so for over 18 months eliminates your option of a short sale.

Have more questions on this or some other short sale topic? I'm here to help.

Sean Wilder

Loss Mit Services

860-265-3727