LawsonGroupMediation

HUD backed properties that have sustained damage due to fire, flood, earthquate, tornado, or homeowner neglect may be sold in a short sale.  However, the lender will need to obtain prior approval from the USDHUD National Servicing Center before submitting the short sale for HUD approval.  They will first need to obtain the government’s cost to repair the damage from contractors approved by the government.  The lenders have access to those contractors.  You could obtain it yourself and provide it to the lender in the proposal.  A list of approved contractors is found at http://www.hud.gov/offices/hsg/sfh/reo/mm/mmingo.cfm.  The lender will then send form 90041 to HUD which is a request for variance to the National Servicing Center for the approval to sell the property in a short sale.  This, of course, will take longer than normal for short sale approval.

Although the SMI owns the note, this procedure may be followed either by the SMI or the SMI may have allocated this procedure to the servicing lender.

If the property is sold “as-is”, subject to the damage, the lender must deduct the estimated cost of the damage from its claim to HUD.  This is solely between the lender and government.  The lender may reduce the minimum threshold net receipt by the amount of those damage estimates.   The lender may, however, sell the property in a short sale “as repaired” and place funds in escrow for repair of those damages.  In this event, the minimum threshold percentages must be maintained, and repairs may not be part of the closing costs.

In some cases, the lender will not need to obtain this approval from the National Servicing Center.  The lender will know when this is the case and it is based upon the cause of the damage and whether HUD will hold the lender responsible.  However, the lender must work with the homeowner to file a hazard insurance claim and either use the proceeds to repair the property or adjust the claim by the amount of the insurance settlement or the government’s repair cost estimate.  Homeowners are required to disclose any property damage to the lender during the short sale application or after HUD approval. In the event there is damage to the property after approval by HUD for the short sale, the lender must re-evaluate the property to determine if it still qualifies for a short sale.

I recognize that describing this procedure may create more questions.  However, whenever you have properties damaged either by homeowner neglect, flood, fire, etc., contact a HUD approved contractor and obtain an estimate.  Get the homeowner to file a claim from their insurance company for any covered damaged (of course, not for homeowner neglect).  Specifically ask if the homeowner has flood insurance, if there is water damage.

If you do this for the lender and submit the documentation with the short sale proposal, you can shave off a lot of the extra time it will take to obtain approval.  It is difficult enough to find buyers willing to wait months for approval to purchase a home, so your activity in this regard for the lender will benefit your attempt to obtain approval for the short sale.

I hope this explanation has been helpful to you.  Remember, this is only for short sales of FHA/VA loans.