HUD (Housing and Urban Development) has a short sale program for FHA insured mortgage loans that helps distressed homeowners get out of their home or investment property without having to go through foreclosure. This short sale is completed under the HUD Pre-Foreclosure Program, which benefits both the mortgage lender and you the homeowner.
If you have an FHA insured mortgage loan and owe more than you believe the home is worth and cannot afford to pay your mortgage payment or need to relocate out of the area due to a job change or military service, HUD and FHA offer a much better alternative than walking away from the property and being foreclosed on by your mortgage lender. Besides the stress caused by the foreclosure process, there are serious credit damage, financial and legal ramifications to foreclosure. Not only do you have a scar on your credit history and financial statement for years, but your mortgage lender could go after you for the money you still owe even years after you thought your foreclosure ordeal was well behind you. As a result of these problems with foreclosure, the better option is to complete a short sale under the HUD Pre-Foreclosure Sales Program.
In addition to selling your home in a short sale transaction, you may also qualify for other options which could allow you to stay in their homes. This is usually accomplished through the home retention or loss mitigation departments at the mortgage companies. In those departments the bank representatives will review the your financial information and hardship and determine whether the you qualify for a loan forbearance or loan modification. In the case of an FHA insured mortgage loans the home retention review process is required before moving forward with a short sale.
If a short sale is the best fit for you, a review of the HUD Pre-Foreclosure Program is the next step. During this review process the mortgage company will review your financial situation and hardship. Some important requirements of the HUD PFS Program you, the homeowner/seller must have lived in the home at least two out of the last five years and it must be owner occupied. There are exceptions to the owner-occupancy requirement such as if the homeowner was forced to move due to a job transfer, death, or if the home was not rented out for more than 18 months.
If the review results in the mortgage company recommending a short sale, the mortgage company agrees to complete the valuation of the house by ordering an appraisal and Broker’s Price Opinion (BPO) of the house. After the valuation process is completed the mortgage company is required to issue an Approval To Participate (ATP) into the HUD PFS Program.
Starting with the date that the ATP is issued, the Seller is given 120 days to sell the house. Within 7 days of the issuance of the ATP the Seller must list the Property for sale with a REALTOR and market the house continuously for at least 15 days before any purchase offer can be accepted. During days 16-30 of the 120 day PFS Marketing Period an offer must net HUD at least 88% of the appraised value. During days 31-60 an offer must net 86% and after 60 days the offer must net and 84% of the appraised value. If the homeowner’s loan is in “active foreclosure” status at the mortgage company then the property does not need to be listed for sale, but a sale contract will be needed in order to start the short sale review process.
HUD has a detailed list of sale expenses that are permitted. For example, repairs are generally not allowed unless the Seller pays for them out of their own pocket, Sellers may not offer repair allowances/credits to the buyer and the Seller cannot pay for a Home Warranty.
One of the best things about this FHA short sale program is that when the short sale transaction closes the mortgage debt is completely satisfied, which means that you will not owe any more on the property. If you were residing in the house at the time the short sale was approved, the sale price nets the required minimum and the short sale closes successfully HUD will pay you up to a $3,000 relocation incentive.
If you have more questions or if the HUD PFS Program sounds like something you would like to pursue please don’t wait. The biggest problem that most homeowners face is waiting too long. The longer you wait the closer to foreclosure you’ll get. To get on the road to financial recovery by starting your short sale process now, please call Jim McCormack, the Nashville Short Sale Specialist, at 615-796-6898.