Nearly ninety days ago, my solid-gold pre-approved first-time buyer started shopping for a home. They chose a property that was being promoted as a potential short sale. I did my research, and found three liens on the property -- one primary and two small subordinates. However, the first and "third" were both FHA, both from the same lender -- and shame on me for assuming we were negotiating as a package.
They submitted an offer. Seller hired a short-sale specialist attorney. We were told to give it 10-12 weeks. No problem.
The first surprise came when negotiations between the primary (FHA lender) refused to allow the buyer's 3% closing cost credit request as per the contract. Apparently someone in HUD's skin-in-the-game department has determined that it's a good policy to only allow 1% of buyer's closing costs on a short sale and to wipe out all the buyer's savings and resources. Okay, they agree. After all, they'll get the tax credit in February and have a little cushion.
With the first lien negotiated and the second lender on board comes surprise #2. Apparently HUD will not negotiate whatsoever on a third-lien FHA mortgage that AMAZINGLY was granted to this homeowner just last October (2008) LONG AFTER the declaration of a mortgage meltdown, release of the declining market zip code list, and sub-prime cleanup -- BY THE SAME FHA LENDER.
So here's a seller who took out a primary mortgage, two years later a second mortgage and then just last year was granted a third FHA mortgage. Our offer (which they agreed to raise to meet the FHA appraised value) is now within 20% of the total indebtedness. But their refusal to negotiate on the third lien has killed this deal. Seller doesn't have $9,000. Buyer would have had $9,000 but they have to use it to pay their own closing costs. So tomorrow I'm gassing up the car, bringing a sack lunch, picking them up and going on a house-hunting marathon.
There's no question in my mind that the HUD staff can't even spell FHA. But now I question if they can calculate math? Because of "policy" that was written by people who have never handled a real estate transaction, HUD is refusing to accept 80 cents on the dollar and apparently prefers to own this townhouse.
Happy Holidays, HUD. I'll put a big red bow on the front door for you.