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FHA may allow your Short Sale Seller to purchase a home. ML09-62

By Tim Bradford

Mortgage and Lending NMLS142066/250013

December 17, 2009 10:21 AM

Below is information and guidance from FHA ML 09-52. Anyone dealing with a Short Sale Seller where the Seller is wishing to purchase another property will want to read this. These rules may permit an opportunity for a seller to purchase another property without waiting the Three (3) years as required by FNMA. One of the key elements is that the seller be CURRENT on their Mortgage.

As more information is available, I will update this post. Also, remember FHA sets guidelines for loans that they will insure. Sometimes finding lenders that will accept the loans is another story.

Purpose

This mortgagee letter provides guidance to lenders and underwriters regarding borrower eligibility when

•· a previously owned property was sold for less than what was owed (short sale), or
•· there is principal write down of indebtedness that cannot be refinanced into a new mortgage (short pay off).

Effective Date

This guidance is effective immediately.

Summary - FHA Guidance on Short Sales

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to

•· take advantage of declining market conditions, and
•· purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

Reference: For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g

Summary - Guidance on Borrowers current at the time of Short Sale

Borrowers are considered eligible for a new FHA-insured mortgage if

•· they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
•· the proceeds from the short sale serve as payment in full.

Reference: For detailed information, see "Short Sales" at 4155.1 4.C.2.l.

Summary - Guidance on Borrowers in default at the time of Short Sale

Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.

Reference: For detailed information, see "Short Sales", at 4155.1 4.C.2.l.

Summary - Refinancing with Short Pay Off

FHA will insure the first mortgage where the existing note holder(s) write off the amount of indebtedness that cannot be refinanced into the new mortgage due to a decline in property value and/or a reduction in income.

Reference: For detailed information, see "Short Pay Offs", at 4155.1 3.B.1.f.

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Larry Bergstrom

Crescent Realty, Inc. Spanaway, WA. - Spanaway, WA

CNE, CRS, GRI

Tim: one of the guidelines says that they (sic)"must be current on their mortgage." How is that possible?

From my experience, most lenders won't work with a seller until they're delinquent.

Please inform me.

Dec 17, 2009 10:31 AM

Tim Bradford

Cleveland, OH

NMLS 250013

Larry, I know what you are saying or asking. To the best of my knowledge, in order to qualify for a short sale most servicers(Lenders) require the loan to be Delq. So I agree how can this be achieved. As part of the actual guidance there is this statement. NOTE: HUD says Current at the TIME OF THE LOAN APPLICATION. Does they mean they can be current when applying for the new purchase, and then go into DEFAULT in order to have the Short Sale Approved???

Borrowers Current at the time of Short Sale
Borrowers are considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage

• All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and
• All installment debt payments for the same time period were also made within the month due.

I will update this later when more information is recieved from some my investors.

One reason for the post, is realtors hearing this information might make incorrect assumptions. Everyone will need to see how the investors want to deal with the Mortgagee Letter.

Dec 17, 2009 10:47 AM

William "Bill" and Karen Farragher

EXIT Blue Water Realty, Matawan, NJ 07747 - Matawan, NJ

SFR

Tim, very interesting. I would love to sell my house short and buy something else that is cheaper and lower my payments. I have never been late with any payments of any kind.

Even if I were able to do that why would I. Wouldn't it still affect my credit score which affects all other credit availability, like buying a car etc.

When are they going to make people accountable for their own decisions. Now I understand that there are alot of people in financial hardships and I'm not talking about those people.

Maybe I'm not understanding the whole picture here, I'll have to keep an eye out on this.

Dec 17, 2009 03:19 PM

Bill, I am scratching my head on a number of questions the Mortgagee Letter raises. A quick read of this would mean they would have to be Down Sizing and moving much closer to work. Again I would say we will have to wait for the Lenders(Investors) to issue further guidance.

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to
•· take advantage of declining market conditions, and
•· purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

Dec 18, 2009 01:03 AM

Svetlana Stolyarova

Local-n-Global Realty, Cleveland and International Real Estate Solution - Mayfield Heights, OH

Local-n-Global Realty, Broker 216-548-4663

Tim - I'll park here to see the updates on this information. Sounds optimistic but contradictive to me. Obviously, more clarification should arrive.

Happy Holidays to you and your family!

Dec 19, 2009 12:36 PM

Svetlana, Thanks for reading the post and the Holiday Wishes. I wish you a great 2010 and look forward to working with you in the New Year.

Contradictive is a good way to describe the Mortgagee Letter. As of yet we have not had any guidance from our investors.

Dec 19, 2009 12:51 PM

John Cassels

Sterling Savings Bank - Tacoma, WA

NMLS #197076

Great info for my Realtors... thanks for the news!

Dec 22, 2009 03:44 AM

FHA may allow your Short Sale Seller to purchase a home. ML09-62

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Tim Bradford

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