New Changes For FHA Short Sale (PFS).

By
Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

Hi folks. Here are the new FHA Short Sale changes that went into effect last week. FHA Short Sales can be challenging if not worked properly. But at least they don't keep us in the dark. The FHA PFS guidelines are very specific.

Below is a press release from Bank of America outlining the changes to the FHA Short Sale guidelines.

I hope it helps.

If you need assistance with a FHA Short Sale in the Orlando area let me know. I can help.

Hire an Orlando Short Sale Specialist


Effective October 1, 2013 U.S. Department of Housing and Urban Development (HUD) has announced the following changes to their Federal Housing Administration (FHA) Short Sale requirements:

  • Eligibility Requirements: To successfully complete a short sale under the FHA short sale program, the borrowers must meet the following requirements:
    • They cannot list the property with or sell it to anyone with whom they are related or have a close personal or business relationship.  In legal terms, it must be an "arm's-length" transaction.  Any knowing violation of the arm's-length requirement may be a violation of federal law.
    • Your mortgage must be in default, on the date the short sale transaction closes.
    • Before closing, any additional liens against the property must be released. A lien holder who demands a payment to release its lien must submit a written statement, and an agreement to release the lien if that amount is paid.
  • Financial Hardship Validation Requirement: For a standard preforeclosure sale, servicers must use a Deficit Income Test (DIT) to determine a homeowner's financial hardship.  The IRS Collection Financial Standards will be used to verify homeowners expenses not reflected in their credit report.  Only owner-occupied properties are eligible for the standard preforeclosure sale.
  • New Streamlined Short Sale Option: Homeowners eligible for a streamlined short sale may not be required to submit financial information or have a financial hardship.  Principal residences, second homes, investment properties and service members who have received Permanent Change of Station (PCS) Orders are potentially eligible.
  • Property Appraisal: The appraisal of your property should be completed within approximately ten business days.  After the appraisal, the short sale file will be updated and prepared for review.  In some cases, approval may be required by the investor and/or FHA, which may take more time.
  • Cash Contribution: As a new condition, you might be required to make a final payment (sometimes called a cash contribution) before or at closing.  This payment will reduce the deficiency balance.
  • Borrower's Incentive Compensation: If you are an owner occupant, acting in good faith, and successfully selling your property, you may be eligible for an incentive of up to $3,000.  If you are required to make cash contribution, you are not eligible for this incentive.
  • Short Sale Contract Addendum:
    • The revised FHA short sale addendum must be signed and dated by all parties.  Under this addendum, all parties agree that the subject property must be sold through an arm's-length transaction.  An arm's-length transaction is defined as a short sale between two unrelated parties that is characterized by a selling price and other conditions that would prevail in an open market environment.  Also, no hidden terms or special understandings can exist between any of the parties (e.g., buyer, seller, appraiser, sales agent, closing agent, and mortgagee) involved in the transaction.
  • Action Required: Review the Short Sale FHA Program guides located on the Agent Resource Center:

To review additional information about FHA requirements, please log on to www.hud.gov.

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Comments (6)

Beth and Richard Witt
Long Island Cash Home Buyer - Center Moriches, NY
Long Island Cash Home Buyer 516-330-6940

What's that saying... Knowledge is power... your post will give anyone involved with a short sale a lot of power...

Oct 06, 2013 09:46 PM
Ed & Tracy Oliva
West USA Realty - Arizona - Fountain Hills, AZ
The Oliva Team Arizona Agents

Good Morning:  This is some great Info for all in the business,  Keep up the good work and good luck with your sales,  E

Oct 06, 2013 09:47 PM
Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Denver Broker / Author / Advocate/Short Sale

We just love the new "cash contribution", as if the seller is concerned at this point if it reduces the deficiency by one payment. 

Oct 06, 2013 09:53 PM
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Eighteen Years Experience in Brevard County

Good information here, Bryant. As one who rarely touches a short sale any longer it is good to stay in the info loop. Thanks.

Oct 06, 2013 10:07 PM
Les & Sarah Oswald
Realty One Group - Eastvale, CA
Broker, Realtor and Investor

Bryant,

You most definitely is the shortsale guru. Thanks for keeping us update with the changes. I am also wondering what percentage of homeowners will be willing to provide the cash contribution.

Oct 07, 2013 08:12 AM
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

The cash contribution is a tough one to overcome.  Seems like nobody wants to cough up any money even if they have been living there cash free for years. 

Oct 08, 2013 07:53 AM