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Seller's Lender Approval Process During A Short Sale

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

Short Sales have been the subject of many blogs here on ActiveRain.  Most of the blogs have been written by Realtors explaining the process from the Realtor and Seller side of the process.  I am a Loan Originator, and do not have anything to do with the Loss Mitigation Department at McCue Mortgage.  However, I do loans for Borrowers who are purchasing Short Sale Properties, and wanted to get a better understanding of the Seller's Lender Approval Process During A Short Sale.  

When time permits I have been talking to our Loss Mitigation Department about the process, and asked them to put together for me in bullet form the steps that they go through in the process.  99% of the Loans that we Service at McCue Mortgage are Connecticut Housing Finance Authority (CHFA) Loans that are FHA Insured, so basically all of our Short Sales are through HUD.

Once a Seller realizes that they need to sell their property, and that it will be a Short Sale, it is suggested that the Short Sale approval be requested, even if the property is not listed for sale yet.  By starting the process early the Loss Mitigation Department can begin the process of determining eligibility and fair market value.  Once this is done, the Short Sale process will go much quicker when the property goes under contract.  Below are the steps that the our Loss Mitigation Department shared with me:

  • Analyze financial documents, and review the hardship.
  • Title Search Is Ordered:
    • HUD allows up to $2,500 for junior liens
    • Anything above that amount is the Seller's responsibility.
  • Appraisal Is Ordered:
    • The Underwriter checks for quality and value. 
    • Appraisal expires after 120 days.
  • Approval To Participate:
    • Seller signs within 7 days agreeing to terms 
    • If the property is not listed for sale, it must be listed at this time at or near the appraised value.
    • Seller is given a deadline of 4 months for the property to go under contract. 
    • Net proceeds of the sale must be at least:
      • 88% of the appraised value first 30 days from date of approval to be eligible
      • 86% of the appraised value the next 30 days
      • 84% of the appraised value for the duration
  • HUD Allowable Closing Costs:
    • 1% of Buyers Mortgage Amount for Seller Paid Closing Costs (only if the Buyers Loan is FHA)
    • 6% for Realtor Commission
    • $750 Closing Fee
    • $2,500 for junior liens
  • Sale of the property needs to be Owner Occupied, but exceptions may be granted.

During the Short Sale process variances maybe needed to be requested from HUD anytime that a condition exists that is outside of the HUD Guidelines. Each time a variance is requested from HUD, it can take up to 10 days for HUD to respond. The most common reasons for asking for a variance are:

  • Property is Non-Owner Occupied
  • No Hardship
  • Surplus of Monthly Income
  • Net proceeds from the sale do not meet HUD requirements
  • Unacceptable Closing Costs
  • Appraisal Expired
  • Approval to Participate expired

As you can see if there is a need for variances during the Short Sale process, they can extend the approval process considerably. 

I hope that the above on Seller's Lender Approval Process During A Short Sale, has given a clearer understanding of what takes place on the Lender side of a HUD Short Sale.  I am still trying to get a clearer understanding of all of this, but the above has given me a better understanding of what takes place.  I am continuing to talk with my Loss Mitigation department to further clarify somethings for me, but this has been a good start.

 

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 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

Posted by

George Souto
NMLS# 65149

C (860) 573-1308
CALL 7 Days/Wk
Fax (860) 760-6891

Email Me
About Me
My Blog

I am a Mortgage Loan Officer who can assist you with all your mortgage & refinancing needs in
CT, and RI

I can assist you with your Conventional,
FHA, CHFA, VA, USDA, & 203K loan programs.

I reside in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Haddam. E. Haddam, Higganum, Chester, Essex, Deep River.

 

Comments(19)

Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Sad, sad, sad. 

This post will, however, help agents and borrowers with no short sale experience understand why the very words "short sale" so often means a road to denial and another failure for the home owner.

Apr 01, 2013 07:48 PM
Sandy Padula & Norm Padula, JD, GRI
HomeSmart Realty West & Florida Realty Investments - , CA
Presence, Persistence & Perseverance
George, thank you for posting this. It certainly is enlightening. Of course, no where did I see the allowance for documents the lender bank loses or conveniently can't find.
Apr 01, 2013 08:57 PM
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

I know there are formulas that need to be followed. That is if they are followed. I have a property on deposit, which is a short sale, we are now going into our 9th month and closed on on recently that was almost 6 months.

Apr 01, 2013 09:18 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Lenn, I am just trying to understand this better, Short Sales do get approved but there is nothing short about them.  I seems that no matter who I talk to Realtors, Buyers, Sellers, and yeas Lenders, everyone has one thing in common, they are all frustrated by the process.

Norman, I am sure that there is a fair share of that, but for now I was just trying to get a handle on the procedure

Joe I had one Borrower that did not go as long as that but, it was about 7 months. Whatever could go wrong went wrong including after the Short Sales was approved, the renter not wanting to move out.

Apr 01, 2013 10:47 PM
Frank Laisch
Orlando, FL
"The Insurance Guy"

George, this is really good info for inexperienced agents. this always helps

Apr 02, 2013 12:14 AM
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Hi George, I want to thank you and Lenn Harley for this.

I had to write a new post. Here is the link.

Bill Roberts

Apr 02, 2013 03:01 AM
Dan Tabit
Keller Williams Bellevue - Sammamish, WA

Hi George, I saw this on Lenn's reblog too and had to say thanks for the info.  I've always told my clients there is nothing "short" about a short sale, it's called that because if we are successful the bank will take it in the shorts.

Apr 02, 2013 03:34 AM
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

George,

Rules are liberating! Now we know what HUD wants and can construct an offer accordingly.

I don't like allot of this, but he with the Gold Rules!

I also take most rules as simply guide-lines.

Bill

Apr 02, 2013 03:49 AM
Joni Bailey
101 Main St. Realty - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

I took the CRS courses for short sales and it was enough to make me decide that I did not want to make this my niche. As always, GREAT info here!! Bookmarked in case I need to share this with anyone! Thanks!!

Apr 02, 2013 06:24 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Frank thank you

Bill, I will take a look at the post.

Dan you are right there is nothing short about them, and they are long on frustration for everyone involved

Bill I don't know anyone who likes these rules including the Lenders.  HUD goes out of their way to make it difficult, but somehow the avoid the blame.

Apr 02, 2013 06:28 AM
Linda Greco Rich, ABR, SRES
Exit Preferred Realty - Bel Air, MD
Harford County Specialist

Frank, This is a great resource for anyone thinking of the daunting task of a short sale! You've taken the mystery out of the process for the everyday homeowner.

Apr 02, 2013 06:32 AM
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

George, your post just confirms I made the right decision in not doing short sales in the future. I heard at a recent short sale seminar this year, that Fannie Mae will be more of a problem child to hold up short sales even longer. Homeowners will have to go through a loan modification application first and receive a "written denial" before they can proceed with short sale. Thanks for your post today, P.S. this is not a good time for homeowners underwater who can't make their mortgage payments. They really should seek out legal advice from a qualified reputable attorney.

Apr 02, 2013 09:26 AM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

I have done plenty of short sale and FHA is down there with my least favorite. There rules are often in conflict with reality but their rules still must be followed. Their rules make success with FHA short sales more difficult and more often lead to failure of the short sale.

Apr 02, 2013 09:37 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Linda I sort fo look like a Frank ..... LOL

Pamela, Lenders take the heat for how long a short Sales take, but as you have rightly identified, the guidelines from the GSE's are a big reason for those delays.

John that is the conclusion that I am also starting to come to.  Not that Lenders are without blame, but a great deal of the delays are because of the guidelines that they are forced to follow.

 

Apr 02, 2013 11:26 AM
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in Southern RI and beyond

George, i have been doing short sales for 6 years now and know how tough they can be especially with some of the lenders such as our own RI Housing...it really is a disgrace because they gave these loans out willingly at one time...good info!

Apr 02, 2013 01:00 PM
Barbara Altieri
Better Homes and Gardens RE Shore and Country Properties - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

George -- I have done many short sales and each one is an adventure. You're right on with the net proceeds estimates -- 88/86/84%.  There's certainly a lot to know about shorts.  Very helpful post.

Apr 02, 2013 01:09 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

George - It's interesting to see what it looks like from the lender's side.

Apr 02, 2013 04:45 PM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

George this was a really good post.  I am surprised it has not been featured and will certainly suggest it.

Apr 03, 2013 03:02 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Ginny, If those loans are insured (backed) by FHA like our CHFA is, then it some of the problems and delays are out of their control, FHA is really the one steering the ship in that case.

Barbara, yes there is a lot to learn, and I am finding out that there is more to learn than I first thought.

Christine, it isn't a pretty picture is it ...... LOL

Gene, thank you.  My original post didn't get featured but another member did a blog referencing this post and it got featured, I found that interesting, but I cannot complain about featured post I have had more than my fair share of them.  AR has been very fair with me in that department.

Apr 03, 2013 05:25 AM