Things You May Not Know About a FHA Short Sale

FHA Short Sales

Completing a short sale on a FHA insured loan is quite different than negotiating a conventional short sale transaction.  FHA short sale guidelines are reviewed by the servicer using very specific analytical measures and there is an exact process that needs to be followed. 

Process:

• sellers must first apply for a loan modification before attempting to short sale their home.  This has always been an FHA guideline, however it has rarely been enforced.  Now, a few servicers (Wells, Bank of America) are side-tracking the short sale review to review the seller for a loan modification if the seller has not previously applied for a loan mod.  This can elongate the process
• sellers must be pre-approved to participate in a short sale by receiving the "Approval to Participate" form from FHA.  However, an offer can be submitted without the pre-approval; the servicer will simply obtain the "Approval to Participate" form from FHA on behalf of the seller before reviewing the short sale for a decision.
• Most servicers that utilize the Equator technology system will review FHA files via Equator. The exception is Bank of America.  They review FHA files manually.  This creates a longer process for review.  A typical Bank of America FHA short sale takes at least 4 months for review/decision..

Net Proceeds:

• FHA uses a very specific formula to calculate the acceptable net on the short sale:
•  if the home is marketed for 30 days or less, the servicer cannot accept a net below 88% of Fair Market Value (FMV)
• if the home is marketed for 31-60 days, the servicer cannot accept a net below 86% of FMV
• if the home is marketed for 61 days or more, the servicer cannot accept a net below 84% of FMV

Seller Paid Buyer Concessions:

• FHA will pay 1% to the buyer (on behalf of the seller) if the buyer is obtaining FHA financing (3% can be granted by a variance from FHA that you must apply for)
• FHA will pay 0% to the buyer if they are not obtaining FHA financing

Miscellaneous:

• FHA will not approve a short sale unless the seller is 31 days delinquent, however the homeowner cannot be encouraged to become delinquent in order to qualify for the short sale
• FHA will pay up to a $1,000 incentive to the seller upon completion of the short sale
• FHA will pay a maximum of $1,500 to any junior lien holder

As you can see, FHA uses more of an "exact science" approach to short sales than other investors
Info taken from Platinum Group Services ...www.platinumgroupservices.com