Loss Mit Services

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

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