The following question was recently asked regarding the new FHA guildelines. This question was posted in our Question and Answer Forum, and is where I answered the question. It is a great question, so I wanted to share it with everybody, not just those who are in one of our coaching programs.
The question was:
Your email could not have come at a better time. I’m new to the game and in need of some direction right now. I am doing my first short sale. It is an FHA and I’m stuck. I think I might have done everything wrong.
I don’t understand items 1 and 2 from your mortgagee letter summary.
First, the dates within which the sale must take place for the percentages to apply. Is that the date of the listing, or the date the foreclosure began, etc.
If you would not mind – could you demonstrate using the figures below.
I submitted my package with an offer of 80K ( I thought the discount came off the FMV, which at the time of submission was 135K – down from 150K two weeks prior.)
The Hud appraisal was 115K
The realtor listed the house for 119,500
Short Sale was denied
Oh – There are 2 Hud liens, a state tax lien, a federal lien, and a few other liens on this property
How do you determine if a short sale is worth doing since values are dropping so fast?
Thank you for your help
My answer to the question was:
On page 12 of the mortgagee letter, it states:
“HUD has established guildelines for vauying minimum net sales proceeds based on the length of time a property has been competitively marketed for sale.”
Some loss mitigators (most, actually), will interpret this as meaning that the timing starts when the propety is listed. This is ok, becuase your typical short sale is going to take 3 months from beginning to end anyway, so with that, you’ll end up with the full 84% discount.
With your example below, if the appraisal came in at $115,000, then the max discount of 84% you’ll end up paying (NET TO THE LENDER) of $96,600. Realize that all the other liens will need to be taken care of somehow, but the lender is going to require $96,600 in order to make this deal happen… MINIMUM NET to them.
The discount comes off the “as-is” appraised value. Is that where the $115,000 comes from? Or is the $115,000 the full retail value? Have the listing agent or the homeowner ask for a copy of the appraisal. That will answer the above question. If the as-is value is lower, then you can take the 84% cisount off of that number, and that’s the new MINIMUM NET that the lender will need to see.
*** MANY lenders will try to give you the discount off the FULL RETAIL value of the property. THIS IS NOT CORRECT!!! They need to use the “as-is” value as dictated by FEDERAL GUIDELINES on the mortgagee letter. It sometimes takes a little arm twisting to get them to see it ***
How much are the other liens for?
How much can you sell this house for?
What city and state is this house in?
Let’s evaluate this deal a little further with those quesitons above.
I’ll look for your answer later today.
Marty
I’ll add any follow up questions and answers to this blog.
If you are a coaching student (Emerald or Diamond) and you are not registered for the forum, please do so. There are so many good questions and answers in the forum, that you’re really missing out if you’re not there.
To register, go to www.TopForeclosureTraining.com/forum. The register link is in the upper right hand part of the page.
Take care,
Marty Schulting
