Why Would any Bank Deny a Short Sale?

Let's get past the obvious one first here. If the initial offer is way too low then forget about it. Some banks don't counter back at all in these situations. Well maybe with a 'give us a better offer' but often with no details on the actual price the want. There are always exceptions but be prepared for some crazy responses.

A big issue is the second. We all understand or believe that if the 2nd lien holder doesn't take the measly pennies offered from the first they won't get a dime. So as Realtors we pound our all-knowing chests and spout out 'you're crazy it's this or nothing'. Well not if the 2nd lien has purchased their own PMI (Private Mortgage Insurance). Some lenders have done this on their loans. So if you are dealing with a second trust that is fighting hard, not necessarily a HELOC, then ask the question - Do you have PMI on this? If they say yes you can see why they are sticking to their guns. If it forecloses they will still get 20% back from the PMI insurer.

If this is the case and the 1st lien holder is holding tight on the amount then get on the phone/fax/email and explain the situation and that if they don't allow the amount to the 2nd they are looking for that they will not release the lien for sale.

FHA Short Sales

Short sales that are FHA insured. If you have not had one yet you will soon. These are handled a bit differently and I feel the process has been a good one over all. There is a system in place and it must be followed.

A few highlights . . .

- There are required documents, use them (see links below).
Submission of Form HUD-90036 and the subsequent approval supplied on form HUD-90045 are required prior to listing the home for sale. Form HUD-90036 is completed and signed by the seller and submitted to HUD through the lender servicing the loan.

- For the first 30 days of marketing, mortgagees may only approve offers that will result in a minimum net sale proceeds of 88% of the "as-is" appraised Fair Market Value (FMV).

- During the next 30 days of marketing, mortgagees may only approve offers that will result in minimum net sale proceeds of 86% of the "as-is" appraised FMV.

- For the duration of the marketing period (60 days), mortgagees may only approve offers that will result in minimum net sale proceeds of 84% of the "as-is" appraised FMV.

-HUD will not allow a buyer to inflate the purchase price to cover seller concessions requested.

- $1000 potential seller gift if they contract and close within 90-days of listing.


HUD's Information Page oh FHA Short Sales (PFS - Pre-Foreclosures Sales)
http://www.hud.gov/offices/hsg/sfh/nsc/faqpfs.cfm

HUD Forms
Mortgagee Letter 2008-43 (MS Word doc file)

Hud 90035 Information Sheet

Hud 90036 Application to Participate

Hud 90038 Homeownership Counseling

Hud 90041 Request for Variance

Hud 90045 Approval to Participate

Hud 90051 Sales Contract Review

Hud 90052 Closing Worksheet


And an FYI - All HUD Forms are listed and can be downloaded here!

Overall they system is defined and workable. I like it because the lender MUST follow the HUD requirements and that reduces some of the bulls@#t that some of them seem to like to stir up sometimes.