Subject: Short Sales and Short Pay Offs
Purpose: This mortgagee letter provides guidance to lenders and underwriters regarding borrower eligibility when
-a perviously owned property was sold for less than what was owed (short sale), or
– there is principal write down of indebtedness that cannot be refinnaced into a new mortgage (short pay off)
Effective date: This guidance is effective immediately!
Summary FHA Guidance on short sales: borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreememnt on his or hier principal residence simpoly to
-take advantae of declining market condtions, and
– purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
REFERENCE: FOR DETAILED INFO ON CONVERTING EXISTING PRINCIPAL RESIDENCES INTO RENTAL PROPERTIES, SEE 4155.1 4.E.4.g
Summary Guidance on borrowers current at the time of Short Sale: 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 a payment in full.
REFERENCE: FOR DETAILED INFO, SEE “SHORT SALES” AT 4155.1 4.C.2.1.
Summary Guidance on Borrowers in default at the time of Short Sale: Borrowers in default on thier mortgage at the time of the short sale (or preforeclosure 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.2.1.