Short sales are always better than foreclosures if there is an option. Foreclosures take much more time for seller, buyer and lender and cost more for all in the long run. Plus, foreclosures can cause much more damage to the previous homeowner’s credit long term than a short sale. For many FHA or HUD short sales, it’s actually a benefit to all and many HUD/FHA lenders prefer a short sale if the homeowner simply cannot make the mortgage payment.
FHA Short Sales, also called HUD PFS Sales or HUD Pre-Foreclosure Sales, actually cause the lowest loss as a percentage of the unpaid principal balance. It is beneficial for a struggling homeowner and the lender to conduct a short sale as they will receive a better return on the sale of the property.
For homeowners that may be underwater in their mortgage, meaning that they owe more than the home is currently worth, a foreclosure or short sale may be appealing but understand that there are other options. If there is an option of home retention, this is something to address if it’s the seller/homeowner’s desire. This is usually accomplished through the home retention or loss mitigation departments at the mortgage company. Bank representatives will review the homeowner’s financial information and hardship and determine whether the homeowner qualifies for a loan forbearance or loan modification in order to keep the home. In the case of FHA insured mortgage loans the home retention review process is required before moving forward with a short sale. Most short sales or pre-foreclosure programs state that the homeowner must be in default or clear evidence of delinquent payments.
Even if a homeowner already has a foreclosure sale scheduled, he or she may still qualify for this but homeowners can’t waste any time and must speak to a short sale specialist about the program right away. Most people lose their homes for two reasons; they don’t understand or know their options and they wait too long.
If homeowners choose to go the pre-foreclosure route, the property is appraised by the lender’s chosen appraiser and then the seller will typically receive a, “Approval to Participate” in the Pre-Foreclosure program. Homeowners are required to have lived in the home at least 2 of the last 5 years and it must be owner occupied. However, there are exceptions to the owner-occupancy requirement if the homeowner was forced to move due to a job transfer, death or the home was not rented for more than 18 months.
Within 7 days of receiving the notice to participate, the property must be listed with a Realtor® at the appraised value. Starting from the date of the issuance of the ATP, the seller is given a 120 day marketing period to find a buyer and accept a sale contract that nets HUD 88% of the appraised value during the days 1-30, 86% during days 31-60 and 84% starting on day 61. The home must be actively listed for at least 15 consecutive days before any purchase offer can be accepted.
Other requirements during this sale state that the homeowner must not conduct any repairs unless paid for out of the homeowner/sellers own expenses nor may they offer a home warranty.
If you feel that you may be in a situation that could benefit from a pre-foreclosure program, please don’t hesitate to contact me at any time. I am Jim McCormack, your Nashville Short Sale Specialist, at 615-796-6898.