Understanding FHA short sales

Posted on 12 September 2010 by Aaron Hofmann

It’s important to understand that not all short sales are alike. You probably haven’t heard much about FHA short sales, but they’re coming. The advantage with an FHA short sale is that the US Department of Housing and Urban Development (HUD) lays out the rules on short sales for FHA loans. If you have a legitimate hardship, FHA will forgive you of all the debt and does not ask for a promissory note. HUD lays out their guidelines in “Mortgagee Letter 2008-43.”

Unlike the traditional short sale for conventional loans, you actually submit all the paperwork upfront to initiate an FHA short sale. Documents such as bank statements, tax returns, pay stubs, hardship letter and financial worksheet.

The short sale lender’s loss mitigation department will then review all the information. The next step is for the the loss mitigation department to order an FHA appraisal, which must be done by an FHA appraiser.

Once the appraisal comes back and the loss mitigation department has reviewed your documentation, they will issue an “approval to participate.” At that date, they are allowed to approve any offer that nets 88% of the appraised value. After 30 days has passed they are allowed to accept 86% of the appraised value. Finally, after 60 days have passed they are allowed to accept an offer that next 84% of the appraised value. Here is something that makes FHA short sales easier than normal short sales. You can start the process before you get an offer from a buyer.

Once you get an offer from the buyer, then the lender has 5 working days to approve or deny the short sale offer. If the offer meets the necessary parameters, then the rules state that they must approve it.

These clearly laid out rules make FHA short sales so much simpler than other short sales. One of the big advantages is that prior to putting your home on the market, you already have an amount that you know is approved, which is advantageous to you and to a buyer. One of the biggest concerns for buyers is the unknown of whether the short sale price will be acceptable to the bank and when, if ever, they will respond. With an FHA short sale, your Realtor can market your home as an approved short sale and clearly explain how quickly final approval will be received. This eliminates the common issue we see in the Atlanta short sale market where buyers lose patience and walk away and you’re left standing there looking for another buyer.

I am a Certified Distressed Property Expert and specialize in Atlanta short sales. Contact us today to discuss your situation and stop foreclosure.

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  1. Atlanta Short Sales - Expectations are Key to Short Sale Success | Atlanta Short Sales and Foreclosures |Certified Distressed Property Expert | Keller Williams Realty Says:

    […] For conventional loan short sales, it can take anywhere from 30 days to 6 months for lender approval. Click here for more information on FHA short sales. […]

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