: Short Sales: Be careful of what you say!

Short Sales: Be careful of what you say!

UPDATE as of 11/19/09: 

The rule is 2 years on Conventional.  However:

  • there are probably 10% of lenders that are doing it.  The other 90% will not.
  • It may also vary upon whether it is a Short Sale with no default in payment history
  • or, whether it is a pre-foreclosure that will likely reflect on the credit history
  • It will also depend whether the payoff at the time of settlement reflects the deficiency or it does not.

The Rule on FHA.  Technically FHA sees this as a Foreclosure (takes 3 years to buy a home) but has not ruled out the possibility that one could obtain a loan in 2 years, however one needs to keep this in mind:

  • If there are no lates prior to the short sale and the agreed upon payoff does not reflect the deficiency thus not reflecting on the HUD, then it is likely a good possibility that the client can get the loan in a period of 2 years.
  • If there are lates in the history, then it becomes pretty clear it is a pre-foreclosure and they are very unlikely to get the loan (Must wait for 3 years).
  • Again, there are probably 10% of lenders that wil do this, the other 90% will not.  Keep you eyes open as the lending industry is about to get more strict.  My guess is that the 10% will likely cease to exist. 

What we need to keep in mind is that we should be careful to imply that this is somehow set in stone.  There are way too many variables to risk ourselves in implying that our client "IS" going to get into a home in 2 years.  With the way things are going, it likely will not be the case "AT ALL"  FHA is having major problems at this time and so is Fannie.  In fact, the new rules coming out in the next 60 days will be revolutionary to the way we all are accustomed to.

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Posted on 11/13/2009

Let set the record straight!  There is too much bad information going on about Short Sales.  In fact there are companies right here in Arizona that are conducting Short Sale Seminars teaching agents that the short sale homeowner is eligible for a home loan in 2 years.  THIS IS NOT TRUE!!  The truth is that FHA was up in the air as to how they would rule on this.  So what is the answer?  FHA considers a Short Sale the same as a Foreclosure.  That means that a would-be borrower is not eligible to apply for an FHA Home Loan for a period of 3 years. 

I understand that there is a lot of information out there but I confirmed this with my company's Vice President of Operations who is the Goddess of the Underwriters.  She knows her stuff so I believe "EVERYTHING" she says about loans. 

DO NOT put yourself in a position where you are misrepresenting yourself (Worse! By handing out the wrong information without even knowing it). 

As always, the 90/10 Rule Applies here.. What side will you be on?

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Comment balloon 13 commentsTed Canto • November 13 2009 06:24PM

Comments

This is interesting. This is NOT what I have heard. I have heard that a short sale only puts buyers out for a 24 month "time out". Can you link to the FHA Guidelines where you're citing from?

Thanks.

Posted by Christianne O'Malley, Exceptional Service - Delivering Results in Reno! (RE/MAX Realty Affiliates) almost 9 years ago

Here is a link to the Fannie Mae pPolicy Guide that discusses the ability to repurchase in 2 years. I wish I had time to read through it and tell you exactly where the text is . . . but it's Friday night. Feel free to disagree or point me in the right direction! Thanks

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf

 

Posted by Melissa Zavala, Broker, Escondido Real Estate, San Diego County (Broadpoint Properties) almost 9 years ago

Interesting. I was under the impression that the requirement was 2 years as well. Thanks for the information though, I will look into it on my end.

Posted by Stephen Garner, Hub Media Company (Hub Media Company) almost 9 years ago

Interesting indeed. I need to go read the link Melissa posted. ~Rita

Posted by Brian Burke, Broker & Advising Expert-Denver Luxury Real Estate (Kenna Real Estate) almost 9 years ago

You are correct in respect to Fannie.  This is not the case with FHA.  FHA sees it as it has always done as a foreclosure.  However, realize the clients credit got creamed and they will likely be if anything an FHA profile buyer in the next 2 years.  Which brings us back to the problem = FHA will not finance for a period of 3 years.

Christianne- Great point!  I am going to get it and re-post it on Monday.  Can't get to it at this moment.

Posted by Ted Canto, Arizonan #1 Mortgage Lender (Amerifirst Financial, Inc) almost 9 years ago

Please keep in mind, FANNIE MAE IS NOT FHA!!

Posted by Ted Canto, Arizonan #1 Mortgage Lender (Amerifirst Financial, Inc) almost 9 years ago

Go to page 2-6

http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4155.1/41551c2HSGH.pdf

 

Posted by Ted Canto, Arizonan #1 Mortgage Lender (Amerifirst Financial, Inc) almost 9 years ago

Good info, Todd.  There is a lot of misinformation in the mortgage business these days.  Underwriting has most definitely gotten more conservative, but I hear things like this 2-year policy, plus a couple of emails every week about "low down, no closing cost" loans for 540 FICOs (even 520 occasionally).  Honest miscommunication is one thing.  The kind of "too good to be true" lures that we heard a couple of years ago are entirely different.

Posted by Bill Morris, ABR, CRS, CDPE, ePRO, MBA (RE/MAX Capital City) almost 9 years ago

I agree, I see it all the time in the markets we work with agents.  It's amazing what some people will say without checking the veracity of the statement they are repeating like a parrot.

Posted by Alexandria Virginia, Real Estate Editor (Featuring Susan Craft, CRS, REALTOR® - McEnearney Associates) almost 9 years ago

I'm glad that Fannie Mae was brought up in the comments as that was my first thought.

Also, I thought FHA was between two and three years.  I guess it's now defined definitively as 3 years?

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) almost 9 years ago

so when did FHA put this on record? I closed a client earlier this year on a purchase just 4 MONTHS after completing a short sale. keep in mind that not all short sales are alike. This client never missed a payment on the previous home that was short sold. (yet another mythbuster).

Posted by Matt Dunshie, Realtor - Matt Dunshie & Associates (RealtyONE Group) over 8 years ago

Hi Matt,

I understood you met with a very great friend of mine today (Stephen Garner). 

In your client's case, there are likely scenarios:

  1. Your client had negotiated a "Paid In Full" with the lender.  I have heard that this is possible under certain situations meaning they will report it as such (not showing a deficiency).
  2. .. or Your client, obviously, did not ruin their credit prior to the short sale (ie: made their payments on time) and therefore were able to purchase before the deficiency hit their credit rating. 

These are the only 2 things that I can think of, other than that the rule applies.  I have checked this 4 times since the original post besides my Vice President is no schmoe when it comes to this sort of information (We are a multi billion $$ company). 

I am now feeling that agents are in doubt since they have listened so much to these short sale people.  Well I think agents need to stop listening to people who have nothing necessarily to do with loans and check with your local preferred mortgage company.  Anyhow, FHA has put down the gavel on this already.

Posted by Ted Canto, Arizonan #1 Mortgage Lender (Amerifirst Financial, Inc) over 8 years ago

As you can see below, conventional loans treat a short sale the same as the deed-in-lieu of foreclosure as far as the time frame is concerned.  We have had several conversations with FHA on this and they look at it like a foreclosure or deed-in-lieu (which if you think about it, it is the same as a deed-in-lieu of foreclosure)  and they need 3 years since completion of the short sale. 

 

Condition

Extenuating Circumstances (1)

Financial Mismanagement

Time Elapsed After Completion of Deed-in-Lieu of Foreclosure

• Time elapsed must be 24 months or greater.

• Time elapsed greater than 24 months up to 84 months allowed as follows:

For purchase transactions: The borrower must contribute the greater of 10% minimum down payment or the minimum required for the loan program (no gifts).  Second homes and investments are allowed.

For rate and term and cash-out refinances: The existing loan must be seasoned greater than 84 months.

• Time elapsed must be 48 months or greater.

• Time elapsed greater than 48 months up to 84 months allowed as follows:

For purchase transactions: The borrower must contribute the greater of 10% minimum down payment or the minimum required for the loan program (no gifts).  Second homes and investments are allowed.

For rate and term and cash-out refinances: The existing loan must be seasoned greater than 84 months.

Time Elapsed After Completion of Pre-foreclosure or Short Sale

Time elapsed must be 24 months or greater from completion date.

Time elapsed must be 48 months or greater from completion date.

New Public Records for Bankruptcies, Judgments, or Collections

Must have none after date of discharge or completion of plan.

60 days or More Past Due Payments

Past Due Housing Payments

30-Day Past Due Payments

No more than 2 during the most recent 24 months

Borrower's Existing Credit Obligations

Must be current at the time of application

Borrower's Written Statement

Must: Outline the cause of the financial difficulties, and state that the cause was beyond the borrower's control, and state the difficulties are not likely to recur.

Minimum Credit Score (1)

Must meet the minimum credit score requirements identified in the maximum LTV/CLTV section of the applicable loan program guideline.

The greater of 680 or the minimum credit score requirement identified in the applicable loan program guideline.

Re-established Credit Requirements After Bankruptcy or Foreclosure

Must have at least 4 active references that must include:

 

• One traditional credit reference (tradeline) for at least 24 months.

• The payment references may include an account opened prior to the derogatory information, and must include:

•·          One housing-related reference for at least 24 months, and

•·          The credit report must not contain multiple revolving accounts with balances at maximum limits that would indicate that the borrower has excessive obligations that could adversely affect the borrower's ability to repay the mortgage obligation.

Posted by Ted Canto, Arizonan #1 Mortgage Lender (Amerifirst Financial, Inc) over 8 years ago

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