"Short" Sale Information.

[lorrieduke]

I copied and pasted the following.. maybe it will help us all understand....

HUD has recently announced with an official Mortgagee Letter (09-52) that depending on whether or not you were current at the time of the short sale will make a difference as to how long you must wait to get a new FHA insured loan.

If you are not current at the time of the short sale of your home:

Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.

If you are current at the time of the short sale of your home:

Although it is not clear in the letter (surprise, surprise), it is common that lenders will not allow you to get an FHA loan for 2 years from the time of short sale of your home.

But –

According to the Mortgagee Letter, it unclearly states that you are eligible for another FHA loan if you were current on your payments at the time of sale and “you didn’t short sale your house to take advantage of market conditions and purchase at a reduced price a similar or superior property within a reasonable commuting distance…”

Confusing if you ask me.

But here is the official wording of it:

FHA guidance on short sales
Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to:

► Take advantage of declining market conditions, and
► Purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g.

Guidance on borrowers current at the time of short sale
Borrowers are considered eligible for a new FHA-insured mortgage if:

► They were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and

►The proceeds from the short sale serve as payment in full.

For detailed information, see “Short Sales” at 4155.1 4.C.2.l.

And if you have tried unsuccessfully to short sell your home and haven’t been able to get a loan modification, be sure you are aware of how long the waiting period is to get an FHA loan after a foreclosure.

And as always, if you have additional questions you can always call 1-800-CALL-FHA to speak with a representative at FHA directly.

HHM is right.. and I was just on the phone with my attorney regarding our situation and ran this question by him.. I read to him what I was about to post and he stated the information was absolutely correct with one exception... he says most banks will not even consider a short sell unless you have defaulted on your payments.

[jmanford]

Where did you find this?

[lorrieduke]

I got the information directly from the HUD website. Here is the website address...

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-52ml.pdf

[mom2three09]

How does all of this apply (the FHA SS rules) if you currently have a discharged FHA loan?

We were discharged in Nov.09. BofA is servicing our loan. Did NOT reaffirm. Our orginal plan was to sell our home once we are able to be approved for a new loan, but we're now afraid we will not get enough $ from the sale to cover realtor fee's, etc (house down the street identical to ours on market for $5K less than we currently owe on ours -- although our home has a few more upgrades done to it). Anyway, now we're wondering just what our best option is.... a SS sounds like something we may be interested in, especially if we can buy another home via FHA within a year or less...

[HHM]

You will need to wait 2 years from your bankruptcy discharge anyway. Also, if you default on the FHA loan, FHA doesn't give you another loan (so I am told).

[bkbirdie]

This thread has been very informative. I've decided to pursue a short sale because my home loan is guaranteed through the VA, and I want to minimize the VA's losses as much as possible. My home loan was included in my CH7 BK which was discharged in Feb. of this year, and I did NOT reaffirm. After much indecision over the last 6 months, I finally decided that a shortsale is the best avenue for me. This month is my first month of nonpayment. In this case, it's actually called a VA compromise sale. There are a few key differences between a VA compromise sale and a regular short sale, mainly that we have to net at least 88% of fair market value after all commissions and closing costs, etc. I spoke to the VA, and they told me that depending on how much the VA loses, I may still have partial eligibility for my next home. I can also choose to pay the VA back for the loss, but it's not required. I understand that it will be at least 3 years before I can get another mortgage, and I'm okay with that. I found a realtor who has experience with VA compromise sales, so I'm confident that it will work out.

[lorrieduke]

I was just on the phone with a local real estate agent who told me some information and I dont know if its accurate..
She tells me if a person short sells their property that it only drops your credit score by about 100 points vs. a forclosure which is about 300 points and that a short sell is only on your credit report for 2 years vs. a forclosure which is 10. She said said a short sell is reported as "settled" vs. just walked away. Is there any truth to what she stated?
What is the benefit to short selling?

[jmanford]

My mortgage broker said if you do a short sale and can prove a hardship, you will be bale to purchase a home again using an FHA loan in 2 years.

[lorrieduke]

Thank you for the reply but I am wondering about how it's reported to the credit breauas?

[HHM]

I was just on the phone with a local real estate agent who told me some information and I dont know if its accurate..
She tells me if a person short sells their property that it only drops your credit score by about 100 points vs. a forclosure which is about 300 points and that a short sell is only on your credit report for 2 years vs. a forclosure which is 10. She said said a short sell is reported as "settled" vs. just walked away. Is there any truth to what she stated?
What is the benefit to short selling?

That Realtor does not know anything. He/She is wrong on all points.

[ohiogal]

Why does the IRS tax you on the difference between what you owe and what the house sold for? It's not like you got any money. Where do they think people who were so poor they had to sell their house in a short sale are going to get tax money on tens of thousands of dollars they never saw? That's crazy. How do people pay it?

[HHM]

Why does the IRS tax you on the difference between what you owe and what the house sold for? It's not like you got any money. Where do they think people who were so poor they had to sell their house in a short sale are going to get tax money on tens of thousands of dollars they never saw? That's crazy. How do people pay it?

There are exceptions to paying the tax (being insolvent, which is usually the case when a homeowner short sells the house). As for why, write your congressman and senator.

But it is not that difficult to understand, you were loaned a certain amount of money to buy the house...money actually changed hands. And the borrower didn't pay a portion of it back; that is a net benefit to the borrower, no different than if you earned a bonus at work.

[BrokeOR]

LorrieDuke:

Today, I got my final lender approval for the sale, closing date August 30. It was a process, for sure (got the offer in mid-March), but much of the work involved is very much the same preparation you need to file bankruptcy-I'll be filing (7) in two weeks.

Love to address the potential benefits as I see them. Some are very concrete (financial) and some are psyche-boosts. It all has value. Caveat: My home was in active forclosure, sale date listed as June 1st (notified in March).Because of the look back, not prepared to file until August. So-we would have been out in June.

1. I am already prepared for my bk filing, having done most of this for the short sale. For me, this included personal P&L as business travel has been reimbursed to me since my cc's are not operable. I would have needed that for the filing, and would be scrambling right now to get it done on time, had I not had to do this for the lender

2. As soon as the short sale offer was submitted for consideration (march 20) the lender (at the request of our realtor) pushed back the sale date for my home...And kept pushing it back as the process continued. My home was never advertised as a foreclosure sale. Big plus in a small town.

3. While the realtor and the bank have been doing all of the work, I have lived rent free. I haven't paid anything to live in my home for a year and have stayed in a place that I'm comfortable in. During a financially stressful time, no rent/mortgage was a HUGE bonus.

4. The settlement offer from our lender includes $3000 in relocation assistance to us. Lender qualified us through the Making Homes Affordable/HAFA program. My attorney says he can protect that money in BK as long as we're using it for it's intended purpose. The savings in rent plus this money is a big financial windfall for us, and we did it without a constant threat of foreclosure.

5. During a very stressful period, my realtor has done ALL of the work with the bank in terms of keeping the sales date pushed back and negotiating the system. And, since he has a vested interest in this transaction (his commission), he has worked very diligently to make sure that the property stays clear of trouble and the process is moving so the sale doesn't fall through. Essentially, I have had third party, very competent representation with my bank as it relates to the foreclosure for FREE.

6. I have chosen to mitigate my "crash" and am moving out on a day of my choice, not somebody else's. Again-times are stressful enough and this one piece of control has been very satisfying.

7. My settlement agreement from the lender includes a very specific clause abut how they will report this to the credit companies ("settled"), when they will report it (60 days from closing) and indemnifies us from any responsibility for the balance due to short sale ($165,000). I live in a deficiency state so this is important. We may include the balance in BK anyway, just to make sure. Up to the attorneys

8. I get to leave a neighborhood and a home that I love without leaving an abandoned, uncared for home during the selling season. Also-my home sold a bit above market value (although wayyyy short), so we also give a boost to the comps for the neighbors who are currently listed for sale.

[calgirl67]

How did you get them to pay $3000 in relocation assistance/cash for keys? I thought you only got that in a foreclosure and sometimes in a deed in lieu

[BrokeOR]

I wasn't at the bottom of that one- the lender and realtor were. Apparently, there are Federal incentives out there for both lenders and sellers to close short sale transactions. Our lender qualified us through the Federal program that offers the money. We were neither aware of the incentives nor asked for them, but our realtor knew and made sure that the lenders took the step to see if our sale qualified.

If you've read my other replies, you'll know that for this type of transaction I'm very high on retaining a realtor with heavy experience with short sales. I searched hard to find the best possible professional in this regard and found the one guy in the market that both short sellers and felloe realtors recommended. In the end, it made for one of the most stress-free real estate transactions I've ever been through.

In a short sale, all reators are not equal. If you're considering a short sale, it's worth the effort to do your market research to find the best person for your situation.