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Short Sale Guideline Change

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What is a short sale?  A short sale is a pre-foreclosure sale of a person’s  home,  in which the home is sold for less than the payoff on the mortgage, leaving an unpaid balance.  If your lender approves the sale, the home may be sold, the mortgage released,  and the proceeds from the sale applied to the mortgage balance.   These transactions must be approved by the lender and the process has been, in times past, very laborious and time consuming, with most lenders being less than cooperative.

New short sale guidelines from the Federal Housing Finance Agency (FHFA) became effective on the 1st day of November, 2012.  FHFA is an independent federal agency created by the merger of  the Federal Housing Finance Board (FHFB), the Office of Federal Housing Enterprise Oversight (OFHEO), and the Department of Housing and Urban Development (HUD).  FHFA regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Mortgage Banks.  Under the new FHFA guidelines a homeowner with a Fannie Mae or Freddie Mac backed mortgage is permitted to sell his or her home in a short sale even if the loan is current if they are eligible for a “hardship,” which include the death of a co-borrower, divorce, permanent disability, the failure of a business, dramatic increase in household expenses, or relocation to a job greater than 50 miles from the home.  Special treatment is also extended to members of the active military being relocated with a Permanent Change of Station (PCS).  Fannie Mae or Freddie Mac will also offer up to $6,000.00 to second mortgage or second lien holders in order to expedite a short sale.  Loan servicers are required to review and respond to ALL short sale offers within 30 days of the offer, provide weekly updates, and give a final decision on the short sale offer within 60 days of the receipt of the short sale offer and a completed Borrower Response Package.  A person allowed to sell by short sale will be ineligible for another Fannie Mae or Freddie Mac based mortgage loan for a period of 2 years following the short sale.

These guidelines also call for a restriction on the resale of a property sold at short sale, with a restrictive covenant to be included in the short sale deed.   A buyer at a short sale is prohibited from conveying the property purchased at short sale for a period of 30 days from the date of the short sale.  Although the buyer may resell the property at the expiration of this 30 days, the buyer is further prohibited from re-selling the property for a sales price greater than 120% of the short sale price, until the expiration of 90 days from the short sale.  In order to avoid any confusion as to the beginning date from which the restrictions begin to run, the guidelines use the date of the deed as the beginning date.  However,  a different date may be established by the short sale lender  and could be recited in the deed conveying the property to the buyer at the short sale.  This different date could be, for example, the “closing date” or the “date of recording of the deed.”

 

Following is a link to the notice published by FHFA regarding these guidelines: http://www.fhfa.gov/webfiles/24211/ShortSalesPRFactFinal.pdf

 

It is yet to be seen how these new guidelines will work in reality, since approval or disapproval of the short sale continues to rest in the discretion of the short sale lender, irrespective of the broadening of the areas in which a short sale is “permitted.”


From our offices in Decatur, Alabama, we represent clients in Morgan, Madison, Cullman, Lawrence, and Limestone Counties, including the communities of Decatur, Huntsville, Madison, Hartselle, Cullman, and Athens.

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