Effective October 1, 2013, HUD has announced the following changes to their Federal Housing Administration (FHA) short sale requirements.
To be eligible, one must successfully complete a short sale under the FHA short sale program. The borrowers must meet the following requirements:
1) 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. 2) Any knowing violation of the arm’s-length requirement may be a violation of federal law. 3)
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.
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 is used to verify homeowners expenses not reflected in their credit report. Only owner-occupied properties are eligible for the standard preforeclosure sale.
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.
The appraisal of one’s 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.
As a new condition, one might be required to make a final payment (sometimes called a cash contribution) before closing. This payment will reduce the deficiency balance.
If one is an owner-occupant, acting in good faith, and successfully selling one’s property, one may be eligible for an incentive of up to $3,000.
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.
By Hugh Moore