LawsonGroupMediation

I am continually asked about the requirements for HUD approval.  The latest question concerned the signed HUD form 90035 and 90036.  Following is a summary of HUD requirements for an FHA loan on a property submitted for short sale approval.

Remember that the servicing lender may or may not be the owner of the mortgage note.  If not, which is usually the case, the note is owned by a SMI, most commonly Fannie Mae or Freddie Mac.  The Department of Housing and Urban Development guarantees FHA loans and will pay a claim to the owner of the note for their losses to the amount of the guarantee.

Because of their guarantee, HUD has the right to approve or reject short sale proposals.  More importantly, they must approve short sales if they meet the conditions.  On December 24, 2008, HUD made certain changes specified in ML 08-43.  ML is their Mortgage Letter that contains HUD rulings that they disseminate to lenders.  Here are the highlights:

• HUD approved mortgaged properties must be appraised by the lender using appraiser on the FHA Appraisal Roster
• Properties must be initially listed at the “as-is” fair market value, but not more than 110% of that value.
• The purchase price must be at least, net to lender, 88% of the fmv if sold within 30 days, 86% if sold 30-60 days after being listed, and 84% if sold after 60 days.
• HUD only allows seller concessions of 1%.
• Form 90035 is an information only form and no longer needs a signature to be submitted with the proposal.  This also means that the homeowner no longer is required to see a HUD approved counselor, so 90038 is also no longer required.
• Form 90036 is no longer required.
• Form 90041 has been modified to match the minimum threshold percentage.  This is the variance request used for damage to the property.
• Form 90045 is required for the homeowner to sign which is approval to participate in the preforeclosure sale program. This form will be provided by the lender.
• The lenders are required to participate in the program, and HUD monitors the appraisals to ensure compliance.
• The homeowner does not have to be in default at the time of the proposal.  Default must be imminent and they must be in default prior to closing.  This means they must be at least 30 days behind in their payments at the closing.
• Homeowners must have only one FHA loan.
• They are not required to occupy the property so long as the need to vacate was related to the cause of default and the property was not purchased as a rental for more than 18 months prior to acceptance into the preforeclosure sale program.
• The owner is not a corporation or a partnership, however, approval can be obtained to get around this.
• Distressed sales cannot be used as comps unless they are the only indicator of the value of the property.
• The servicing lender is required to provide to the homeowners information about the other alternatives to foreclosure.
• Approval may be obtained first, and then list the property, or this approval may follow the agent finding a buyer for the property.
• Commissions are allowed up to 6%.

Those are the highlights, and the answers to the many questions I have received.

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