Mortgagee Letter 2008-43 contains the new FHA short sale [a/k/a FHA Pre-Foreclosure Sale (PFS)] program guidelines. It’s definitely an improvement for anyone involved in shorting an FHA loan. Here’s some of what you need to know about the FHA PFS:
* They removed the calculation that required the property to appraise for at least 63% of the indebtedness (this is helpful because many properties have dropped below 37% of the mortgage balance).
* HUD used to accept 82% of the appraised value as their net – now it is 88% if it sells within 30-days marketing time, 86% if it sells in 60-days, and 84% after 60 days.
* Prior to ML 2008-43, HUD would pay zero buyer closing costs on an FHA short sale, now they will pay 1% of buyer’s closing costs if the new buyer is obtaining FHA financing.
* They’ve increased the amount allowable to discharge junior liens up to $2,500.
* FHA allows the seller to walk away with up to a $1,000 check at closing
With the increase we’ve had in FHA loan originations, everyone should expect more and more FHA short sales moving forward. And I’ll conclude with one final comforting comment from our friends at HUD regarding deficiency judgments and FHA foreclosures:
“A PFS sale must be an outright sale of the property. If a foreclosure occurs after the mortgagor unsuccessfully participated in the PFS process in good faith, neither the mortgagee nor HUD will pursue the mortgagor for a deficiency judgment.
FHA/PFS is becoming a kinder more gentle model.
