The FHA Short Sale Program or Pre-Foreclosure Sale Program (PFS) actually set the standard that conventional loan short sale programs should have adopted in my professional opinion. Originally introduced in 1994, the Pre-Foreclosure Sale Program has specific guidelines, processes, and timelines for completing a short sale where the homeowner has an FHA insured mortgage.
This is one type of short sale where the homeowner must be in default, or at least 30-days late on the mortgage prior to closing. We have worked with an FHA short sale where the homeowner was current at the time of applying for the program, the hardship was unemployment, and the owner was accepted into the program due to the high likelihood that default was imminent. Homeowners are strongly encouraged to use a licensed real estate agent in an effort to obtain fair market value (FMV) for the home. So if you have been trying to sell your home as a For Sale By Owner in Alexandria, Lorton, Woodbridge VA or in Washington DC, this may jeopardize your chances of having a succesful FHA short sale on your home.
If you have an FHA insured mortgage, the first thing to do is to contact your mortgage lender and inform them that you would like to request to participate in the Pre-Foreclosure Sale Program. Your lender will mail you a copy of HUD-Form 90035 which will include your mortgage company's toll free or phone number. Once you have been accepted into the program, your lender will notify you by mailing a copy of HUD-Form 90045.
Next, you will be required to list your home with a real estate agent. Using comparative market analysis, we will determine a list price that represents fair market value based on the recent sales and the condition of your home. Per HUD's guidelines the real estate agent can have no financial interest in the property. HUD also requires that you maintain the property in 'ready to show' condition.
Once an offer is submitted, it is important that buyers are aware that:
- HUD will not pay for home warranties
- HUD will not pay for discount points or lender fees for non-FHA financing
- HUD will not pay for repair reimbursements or allowances (property will be sold in as-is condition)
- HUD will not pay for lender's title insurance fees
- The buyer and seller cannot be related, it must be an arm's length transaction
If the purchaser is obtaining an FHA mortgage, HUD will pay up to 1% of the buyer's first mortgage amount toward closing costs.
Like the HAFA program, the Pre-Foreclosure Sale Program offers a monetary incentive to the homeowner. Consideration payable to the seller is $750 or $1,000. Up to $2500 to be used for the discharge of junior liens if closing occurs within 90 days of acceptance into the program (not within 90 days of the contract date). Within 90 days, the first $1,000 represents the mortgagor's consideration and the additional $1500 represents FHA's consideration for a total incentive of $2500. If settlement occurs after 90 days, the first $750 represents the mortgagor's consideration and the additional $1500 represents FHA's consideration for a total of $2250. (Note: the seller may use the incentive to pay for buyer closing costs or items not otherwise covered by HUD)
For more information on the FHA Pre-Foreclosure Sale Program, click here.