Home > Blogs > Jim McNinch > Short Sale Reporter

How Do I Short Sale My FHA Loan?

By Jim McNinch

Real Estate Agent with Trademark Loss Mitigation

October 01, 2012 12:04 AM

The Series on The Top Ten Short Sale Questions Asked By Houston & Spring TX Sellers

Continues With Question #9: How Do I Short Sale My FHA Loan?

Homeowners with loans insured by the Federal Housing Administration (FHA) may be approved to participate in an FHA Short Sale as an alternative to foreclosure.
Spring TX Houston TX Short Sales

FHA's Preforeclosure Sale Program

If you are facing financial hardship and do not qualify for a loan modification or other FHA home retention option, a short sale could allow you to settle your debt without going through foreclosure. FHA's Preforeclosure Sale Program allows a Borrower in default to sell his or her home and use the sales proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount owed.

HUD will pay up to $1,000 incentive to you if closed within 90 days from the date of application; thereafter, the incentive is reduced to $750. HUD will pay an additional amount up to $1,500 for the discharge of junior liens after your incentive has been applied.

You may be approved to participate in an FHA Short Sale if you meet all of the following criteria:

You do not qualify for a loan modification or other FHA home retention option
You are experiencing a permanent financial hardship such as a job loss, divorce, medical emergency, or a death, and are unable to afford your current mortgage.
You have only one FHA-insured loan.
The property must be owner-occupied, no “walk-a ways” or investment properties unless it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as rental investment, or used as a rental for more than 18months.
You must be 31 days or more delinquent at the time of the Preforeclosure Sale closing.
You must provide documentation substantiating a reduction in income or an increase in living expense, and documentation that verifies that you need to vacate the property (if applicable).

How To Start The FHA Short Sale

To start the process, you need to determine if you are eligible for a short sale. The lender servicing your loan will first check to see if you are eligible for assistance that keeps you in your home. They will also need to make sure that they have your updated financial information.

The sooner you start the process, the sooner the lender can help you move forward.

If you meet certain criteria, you may be able to start the short sale process right away. In most cases, however, FHA requires that lender checks to see if you are eligible for a loan modification or other home retention option. During this process, they will probably ask you for updated financial information and additional documents.

If the lender approves a short sale, at no charge to you, they will arrange an appraisal of your house to determine its current fair market value. During this process, the FHA-certified appraiser will consider the sale price of other houses of similar size in your area to help determine the FHA’s sales price for your house.

It is strongly recommend that you work with a licensed real estate agent who has experience with short sales. They can help you through the process, and you will not have to pay the cost of the real estate agent since they will be paid from the sale of the house.

If approved, you will receive the "Authorization to Participate" letter from FHA, with the minimum sale price for the property. You then must list the property for sale within 7 days.

What Happens After I'm Approved To Participate?

Once you have the FHA’s approval to start a short sale and you have signed the Short Sale Agreement, we will delay the foreclosure process while you are pursuing the sale.

You will have 120 calendar days to market your house. During this time, it is important to work with your agent and show your house to as many buyers as possible.

To make sure your short sale is successfully completed, your agent must submit all requested documents on time. Your agent must respond quickly to any counteroffers. If your home equity loan or home equity line of credit is with another loan servicer, you must contact that servicer and request a Second-Lien Release.

As a reminder, you cannot sell the house to a family member or anyone else you have a personal connection with. This is known as an arm’s-length market transaction.

If you are unable to sell your house within 120 days, you may be eligible for a deed in lieeu of foreclosure.

After viewing all the facts, the choice is crystal clear. There simply is no situation in which it is better to simply allow a home to be foreclosed on.

As a Certified Distressed Property Expert (CDPE), I make it my business to know all of the ins-and-outs of the options that are available for people who are in danger of losing their homes. Even if you are not specifically eligible for a short sale, it is important to remember one thing:

THERE ARE OPTIONS! Contact me today and schedule your free, confidential consultation. 832-330-4588 or jim@trademarklossmitigation.com