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
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