No Default Short Sale And Buy

On December 16, 2009, HUD released a Mortgagee Letter (09-52) to lenders and underwriters regarding borrower eligibility for a new FHA mortgage after pursuing a short sale (when a previously owned property is sold for less than what is owed) or a short payoff, when there is a principal write down of indebtedness that cannot be refinanced into a new mortgage.

In the letter, which took effect immediately, HUD stated that borrowers are considered eligible for a new FHA-insured mortgage if:

1. they were current on their previous mortgage and other debts at the time of the short sale
AND

2. if the proceeds from the short sale serve as payment in full

Additionally, borrowers who execute a short sale while in default on their mortgage are not eligible for a FHA-insured mortgage for three years from the date of the sale. Lenders, however, can make exceptions if the default was due to circumstances beyond the borrower's control, such as the death of the primary wage earner.

Download full text of of Mortgagee Letter here

For homeowners who do not qualify for the HAMP (Home Affordable Modification Program) and HAFA (Home Affordable Foreclosure Alternatives) programs, and meets the guidelines above, they can go into strategic default by doing a short sale and buying a new home concurrently. How many lenders who will do a short sale on loans that are current remains to be seen.

Short Sale & Buy Timeline

• List Your Current Home To Short Sale With Us
• Continue Making Your Monthly Mortgage Payments
• Get Pre-Qualified For Your Next Mortgage
• Receive Qualified Offers On Your Home
• Submit Short Sale Offer To Lender(s)
• Start Looking For New Homes
• Get Approved For Short Seale By Lender(s)
• Make Offers On New Homes
• Close Short Sale Of Your Home
• Close New Home

Qualifications

• FICO Credit Score of 640 or higher
• No missed mortgage payment in last 12 months
• No prior bankruptcies or foreclosures
• New home must be inferior to short sale home (purchase price must be less than original loan balance(s) of house in short sale)
• Must have 3.5% down payment on new home

Bay Area California Short Sale & Buy Scenario

Look up the FHA mortgage limits for your state or county here

Let's look at a typical Bay Area home that has $700,000 in mortgage debt, but is now worth only $575,000 in today's market. We short sell this home for $560,000 (also neogtiating with lender so closing costs and others are covered).

Simultaneously, the seller works with the lender to qualify for the replacement home. Once approved, we help the seller find and purchase a similar replacement home at today's values. The replacement property must be priced less than the $700,000 that is currently owned (in our example).

Once everything is approved and processed, escrow is closed on the short sale home while the replacement home escrow is closed the very next day. The past mortgage debts are eliminated and your are now living in a home with positive equity (your down payment)!

BONUS $6,500 Tax Credit

The November 2009 legislation extends the credit to long-time residents of the same main home if they purchase a new main home. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home.

For long-time residents claiming the credit, the IRS recommends attaching, in addition to the documents described above, any of the following documentation of the five-consecutive-year period:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records or
• Homeowner’s insurance records.