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Below is information and guidance from FHA ML 09-52. Anyone dealing with a Short Sale Seller where the Seller is wishing to purchase another property will want to read this. These rules may permit an opportunity for a seller to purchase another property without waiting the Three (3) years as required by FNMA. One of the key elements is that the seller be CURRENT on their Mortgage.
As more information is available, I will update this post. Also, remember FHA sets guidelines for loans that they will insure. Sometimes finding lenders that will accept the loans is another story.
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Purpose
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This mortgagee letter provides guidance to lenders and underwriters regarding borrower eligibility when
•· a previously owned property was sold for less than what was owed (short sale), or
•· there is principal write down of indebtedness that cannot be refinanced into a new mortgage (short pay off).
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Effective Date
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This guidance is effective immediately.
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Summary - FHA Guidance on Short Sales
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Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to
•· take advantage of declining market conditions, and
•· purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
Reference: For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g
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Summary - Guidance on Borrowers current at the time of Short Sale
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Borrowers are considered eligible for a new FHA-insured mortgage if
•· they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
•· the proceeds from the short sale serve as payment in full.
Reference: For detailed information, see "Short Sales" at 4155.1 4.C.2.l.
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Summary - Guidance on Borrowers in default at the time of Short Sale
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Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.
Reference: For detailed information, see "Short Sales", at 4155.1 4.C.2.l.
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Summary - Refinancing with Short Pay Off
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FHA will insure the first mortgage where the existing note holder(s) write off the amount of indebtedness that cannot be refinanced into the new mortgage due to a decline in property value and/or a reduction in income.
Reference: For detailed information, see "Short Pay Offs", at 4155.1 3.B.1.f.
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Remember Just because FHA will Allow it does not mean it can be done. If the investment community does not buy the paper the lenders will not allow it to be done.
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