There are many misconceptions in today’s real estate market. One such misconception is the thinking that when it comes to distressed properties that all short sales are the same.
Nothing can be further from the truth, and although there are four basic categories of short sale, there can be many variations within each category, depending on the parties involved.
One of the main short sale types is the FHA short sale. This short sale category is designed for homeowners with mortgages guaranteed by the Federal Housing Administration.
The FHA short sale process may start at the onset of a financial hardship by the borrower and before the property is listed on the market by a short sale realtor.
In order to short sell a home, homeowners must submit numerous supporting documents to their servicers who in turn work with the FHA to qualify them for the Pre-Foreclosure Sale Program (PFS). As a part of the qualification process, FHA will send out an appraiser to determine the fair market value of the home.
Once the borrower is accepted into the Short Sale Program, an ‘Approval To Participate’ letter will be issued by the FHA and sent to the borrower, outlying the terms, including the minimum required net to the agency, timelines, and any financial incentives to ensure the successful completion of the program.
Technically, the homeowner can wait to list the home with a short sale agent until the ATP letter is in hand. Practically, it makes sense to list the home at the time of application for the Short Sale Program since it takes longer to find a buyer in today’s market and at the very least a market can be tested at different price points.
In the event that the borrower fails to sell the home within a predetermined period of time and does not qualify for an extension, he is put on a Deed-In-Lieu of Foreclosure track.
For a complete program details, please refer to FHA Mortgagee Letter 2008-43.
It is important to point out that even in a fairly straight forward and tightly controlled process, such as the FHA short sale, there are numerous deviations that can influence the successful outcomes. Are there other liens/mortgages on the property? Is the borrower in default? What happens to the deficiency in an FHA short sale? There are many others.
These variations are one of the many reasons to make sure that you are working with a realtor who specializes in dealing with distressed properties and who understands the all the intricacies involved with the different types of short sale.
Short sale help and additional resources are available on this website.