Loss Mit Services

Are you aware of the FHA Short Sale 15 day marketing rule?

Posted on 12. Apr, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

HUD's confusing 15 day marketing rule for FHA short sales

If you have not done a short sale on an FHA loan in the last year you may not be familiar with this very confusing rule.

Before delving into this topic there is one thing I should explain about the HUD/FHA guidelines.  The rules are written assuming that the homeowner contacted the servicer about saving the home and they were reviewed and denied for all home retention options.  It then assumes that the lender suggested the homeowner to pursue a short sale and they were then reviewed and "preapproved" into the short sale program. Unfortunately, it is common for a homeowner to know they cannot afford to keep the property and seek to sell it, before they ever contacted the servicer.  In fact, the likely did not know they needed a short sale until they contacted a real estate agent.  So in most cases, the seller has not done any of this before listing the property.

HUD/FHA requires that all short sale properties be listed as ACTIVE on the MLS for at least 15 days after the Approval to Participate (ATP) is issued.  It does not matter if you already have an offer or at what price.

Let me define a couple things.

The Approval to Participate (ATP) is a document that is given to the seller to sign, informing them that they have been "pre-approved" into the FHA Preforeclosure Sale Program.  That is what FHA calls a short sale.  This document has an issue date, an expiration date (120 days after issue date) and lists the appraisal value.

Once the ATP is issued. the seller is required to get the property listed at EXACTLY the appraisal value and the property has to be ACTIVE on the MLS for at least 15 days before the servicer can review any offers.  So if the property was listed prior to the ATP being issued, it would still have to go back on ACTIVE, even if you already had a signed contract.  The servicer is not allowed to review that contract until they see proof that the property was ACTIVE on the MLS, at the appraisal value, for at least 15 days after the ISSUE DATE of the ATP.  Even if the contract that you have is higher than the appraisal value.

Some of the servicers are getting confused by this rule. In particular, if you already have a contract when the ATP is issued and put it back on ACTIVE to comply with this 15 day rule, some of the servicers are expecting that the sales contract would be dated after the 15 days.  The FHA rules do not actually state that.  They just state it must be active before the servicer can REVIEW an offer.  But not all servicers fully understand the FHA rules.  Never mind that putting the property back on ACTIVE when you have a signed contract, violates MLS rules also.  Not that HUD cares about that.

In order to be fully compliant with HUD and MLS you would have to terminate the contract you already have, wait the 15 days and then sign a new contract.  Understandably, the buyer may not be too happy about that.  If you are listing the property, prior to an ATP being issued, it would be best to inform the buyer up front that this requirement will need to complied with later down the line.

Now here is where it gets even more confusing. If the loan is more than 120 days late before the homeowner applies for assistance, the servicer can send it to First Legal Action.  This starts the foreclosure process.  Once the file is past First Legal Action, it is no longer eligible for the ATP and "pre-approval".  So then, if an ATP cannot be issued, how can you market the property for 15 days AFTER the ATP is issued?  You cannot.  However, the HUD guidelines do not specify any change in the 15 day marketing rule if the file is already past First Legal Action... That is right, the rules conflict. The only way around this is for the servicer to submit a Variance request to HUD to waive the 15 day rule.  HUD will waive that rule for files that are past First Legal Action, but no longer approves variances for files that are not past First Legal, but already have an offer when the ATP is issued.

So what are best practices with all of this?  Unfortunately, it depends.  If the loan is already past First Legal Action, a waiver of this rule can be approved so the 15 days doesn't become an issue later on after having accepted an offer.  If the file is not past First Legal Action then it is important to start the process with the servicer asap.  But do you wait to list it? That is up to you and your seller.  If you wait, you have less time to market the property for an offer.  You will be givn just 120 days during the preapproved marketing period.  Also, you will not have any current marketing history, or offers, to show to the FHA appraiser that will be sent out for the bank.  If that appraisal comes in higher than market value, which is common, you will end up marketing the property for 120 days and not get any offers.  So marketing the property, prior to the ATP being issued has benefits.  If doing so, it would be advisable to make sure the buyer and their agent are aware of the 15 day rule that will need to be met and the seller and agent should decide if the will be terminating the contract or not, during that 15 days.

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

Sean Wilder

Loss Mit Services

860-265-3727

Not all Mortgages Qualify for a Short Sale

Posted on 06. Apr, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

Not all Investors will agree to a short sale.

Things are constantly changing in the world of short sales.  These days, since the expiration of the Home Affordable Program, in 2016, change seems to be a constant theme.

One of the ever growing trends over the last few years has been Delinquent Loan Sales.  This is when the Investor that owns the mortgage, takes a large number of delinquent loans, pools them together and auctions them off to buyers of bad debts.  Usually, these are multi-million dollar pools of loans.

Fannie Mae, Freddie Mac, and even FHA are selling off delinquent loans these days.

Once that loan is sold, the rules change.  No longer are the rules for loss mitigation dictated by the prior owner of the loan.  This new Investor that owns the loan, dictates the rules. Usually, this will also result in a servicing transfer.  This is where the loan is transferred to a different company to service it on behalf of the new investor.  The buyers of these bad debts specialize in buying delinquent accounts.  They of course, pay less than the amount owed to acquire those loans.  And they often send them to be serviced by servicers that more like debt collectors, than they are like mortgage servicers.  This means reps at the bank tend to be less cooperative and rude.  This can make for a more difficult short sale transaction if one is even allowed.

Some of these new Investors are actually not allowing short sales at all.

It does not matter what the offer is.  Unless they are being paid in full, they will not accept an offer on the property.  So far we have seen them be willing to consider a loan modification, or a deed in lieu of foreclosure, but not a short sale.  This still leaves options for the homeowner to avoid foreclosure.  But if they don't know that a short sale is not possible, and market the property for several months, only to then find this out, it may be too late for one of the other options.

So determining if the current investor that owns the loan will consider a short sale, is crucial at the beginning of working on a short sale.  Though this can be a little difficult.  Some servicers will come right out and tell you that this investor will not consider a short sale.  Which is in everyone's best interest to know up front.  However, not all of these servicers are so open.  Some will refuse to tell you who the investor is and will refuse to tell you anything about what they will or will not consider for a workout option.  They want the homeowner to fill out a complete workout package first.  Then they will spend the several weeks to months it takes them to review that, and come back and let the homeowner know what options are available.  For those servicers, we have to use some legal rules to request the investor information in a format that they have no choice but to respond to so that we can determine who the investor is.  We know who is not allowing short sales.  So if we find out the loan is owned by them, we are able to tell the agent and the seller this information so they do not waste any more time thinking a short sale is possible.

We have unfortunately seen a few cases where we were contacted after there was already an offer on the property.  We then learned the investor will not consider any offer.  Obviously, no one was happy.  Best to find this information out before there is a buyer in contract.  This is the reason for this article.

I want agents to know that not every property qualifies for a short sale these days. That information needs to be determined early on to avoid going too far along on a lost cause so the homeowner can look into other options before foreclosure gets too close.

Luckily this has been a pretty low percentage of the files we see, and we see a lot of files.  But it is happening and we have seen close to a dozen of these already in 2018.  Most of which we were able to determine before an offer was received on the property, since determining the investor on the loan has always been one of our first priorities for new files anyway.

In conclusion, whoever is working on the short sale negotiations needs to determine who the investor is that owns the loan, and ask the servicer if they will consider a short sale.  This should be done at the very beginning, preferably before the property is listed for sale, or at least as soon as possible after it is listed.

Sean Wilder

Loss Mit Services

SmartMLS Commission Rules are now Easier for Short Sale Listings!

Posted on 13. Feb, 2018 by ctlms in Blog, My Blog, News, Real Estate, Short Sale

SmartMLS Rules and Regulations now allow agents to advise other agents how commission reductions would be handled.

SmartMLS rules and regulations "Section 7.1.0 Disclosure of Potential Short Sale. Participants may, but are not required to, disclose potential short sales to other participants and subscribers. When disclosed, participants may, at their discretion, advise other participants whether and how any reduction in the gross commission established in the listing contract, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating participants."

I recently reached out to MLS Compliance and confirmed that it is now allowed for agents to offer an actual % to co-broke on the MLS and describe how any reductions to commission required by the lender would be handled.

As an example;

Your listing could offer 2.5% to co-broke, check the box for Potential Short Sale and in the Short Sale Comments state something like "Any reduction in commission, required by the short sale lender, as a condition of the short sale approval, will be split 50-50".

NOTE THAT THIS IS JUST AN EXAMPLE.  Check with your broker or office manager for your company policy on this.  Also, note that I would suggest including the language in the Compensation Notes Section since it is right near the commission offered section on MLS printouts.

The update to these rules should no longer make it necessary to list short sales at $1 co-broke to protect against cuts required by the short sale lender.

Brokerages may want to review these rules and determine if updating their company policies is in order.

Sean Wilder

Loss Mit Services