The Short Sale offers a tremendous challenge for all parties involved. It is an emotional strain on the home owner. It is an extraordinary amount of work for the home owner’s realtor. And it is taxing on the eventual buyer and his/her agent (and lender) as all wait and wait and wait, unsure of the outcome. Meanwhile all are left wondering if other, perhaps better, opportunities are being ignored. These are not pleasant for anyone involved.
Worse yet though has been the aftermath of this new phenomenon. A strategy the banks have now decided is the desired course of action, for them.
Perhaps HUD (the Department of Housing and Urban Development) had a hand in this from the beginning. In 2009 HUD issued one of their mortgagee letter as it pertains to new financing through the FHA loan program. HUD ML 09-52 states:
Definition of Short Sale:
- a previously owned property was sold for less than what was owed (short sale), or
- there is principal write down of indebtedness that cannot be refinanced into a new mortgage (short pay off).
FHA Guidance on Short Sales:
Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to;
- take advantage of declining market conditions, and
- purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
However, there was acknowledgement that everyone who went through a Short Sale was not a credit risk and should be given the opportunity to buy again.
Guidance on Borrowers current at the time of Short Sale:
Borrowers are considered eligible for a new FHA-insured mortgage if;
- they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
- the proceeds from the short sale serve as payment in full.
And, the final word was on those in a default and/or pre-foreclosure status at the time of the Short Sale;
- Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.
HUD does acknowledge that some may have been forced into Short Sale due to extenuating circumstances and offers the following;
- default was due to circumstances beyond the borrower’s control, such as death of primary wage earner or long-term uninsured illness, and
- a review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower’s control that caused the default
What this all means is that if you did sell your house under a Short Sale then you may be eligible for financing right away if;
- You made all of your payments on time during the process, including your other credit accounts and,
- You did not sell your house just in order to take advantage of the market conditions and get out from under a big mortgage that you no longer wanted to pay.
What are generally considered acceptable reasons are forced company relocation or a loss of one income in the household due to layoff, death, extended uninsured illness or divorce.
Otherwise, if you fell behind on your payments then the three-year rules applies.
If you or someone you know sold a house as a Short Sale we can help. Now is the time to start working on your finances and credit to get yourself ready to buy a new home. Contact Duckworth Lending Group at (480) 359-5682 for professional help.