12 Keys to HUD Short Sales
Since writing my post on HUD Short Sale Guidelines I have received numerous calls and comments requesting more information. I am providing the following points directly from the Department of Housing and Urban Development, along with my discussion of items of note.
August 25, 2008 PREFORECLOSURE SALES PROGRAM
(Wendy’s Note: HUD uses the term “preforeclosure sale” for “Short Sale”.)
- Sale must be an “arms length” transaction. *Wendy’s note: Arms length means independent parties, e.g. not related, you cannot sell to your brother.
- HUD will pay “all reasonable cost of the sale including up to 6% sales commission, local/state transfer tax stamp and other customary closing cost.” *Wendy’s note: HUD site also states there is leeway regarding what is “customary”.
- Appraised value of the short sale property must be at least 63% of the outstanding mortgage.
- Net sales proceeds must be at least 82% of the property’s ” as is ” appraised value, defined as selling price minus sales commission, consideration paid to seller, max $1,000 to discharge any lien and customary sellers closing costs. *Wendy’s note: $1,000 is not very much to pay a junior lien in the current market.
- The property must be owner-occupied, not vacated nor an investment property. Exceptions: if the seller can prove he had to move due to the hardship (job loss, transfer, divorce, death)
- The seller must be 31 days delinquent or more at the time of the closing.
- The seller must provide documentation of a reduction in income or an increase in living expense.
- The seller must apply for the Preforeclosure Sale Program with an Application to Participate HUD-90036 along with lender-required financial documentation.
- The lender must obtain a standard FHA appraisal from an appraiser who does not share any interest with the mortgagor or mortgagor ‘ s agent. The appraisal is valid for six months.
- The lender must obtain a title search to verify that the title is not impaired with un-resolvable title problems or junior liens that cannot be discharged as allowed by HUD.
- The seller must maintain the property until closing.
- The seller must list the property with a licensed real estate broker, unrelated to the mortgagor. The listing agreement must include a specific cancellation clause in the event the terms of the sale are not acceptable to HUD.
This is by no means a complete re-cap of the HUD guidelines, but should provide some guidance to those with a HUD loan.