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Fighting HUD in an FHA Short Sale
It’s sort of surprising in a way but many home buyers in Sacramento do not know what kind of loan they have, especially after a few years pass since closing. From their point of view, it doesn’t matter. They still owe all of that money for decades. Whether their loan was FHA or conventional or VA, who cares? But it makes a difference if the seller needs to do a short sale. The rules are very different.
Whenever this Sacramento real estate agent approaches a short sale, the very first thing I do is figure out the seller’s type of loan. If the loan is FHA, for example, there is no requirement to submit an offer with the FHA short sale request. That doesn’t mean a seller might not want to submit an offer, as there are reasons for it, providing the buyer is willing to wait, but it’s not a requirement and, in some situations, it can be a much easier process without an offer.
We had a short sale recently that could not close. It was the first short sale in a long, long time that had been rejected without hope of any further action. Ordinarily, I do not give up; I continue the fight and, if the bank says no, I reconfigure the short sale package and resubmit. Eventually, the banks say yes. But when HUD says no, it means no. To protest would mean fighting the department of Housing and Urban Development.
One can request a variance and build a very strong case. But after that case is presented, it’s sort of like getting an opinion from Superior Court. One could appeal but an agent can’t do it. It takes a lawyer to do it at that level.
Sometimes, clients forget that Sacramento real estate agents are not lawyers. We might seem that way, but we do not have a law degree, we cannot give legal advice, and we cannot practice law, even if our shoes are nicer.
In this particular situation, even though the home was not habitable, HUD rejected a variance request. This was a round peg trying to fit into a square hole. Apparently, there is nothing in HUD guidelines that deal with homes that are uninhabitable. Because the bottom line is when you’ve got Lily Tomlin in her telephone operator role running HUD, the answer tends to be no, especially when they can’t figure it out.
The Rules for an FHA Short Sale
All short sale transactions in Sacramento, especially the FHA short sales, are handled from the perspective of the short sale agent and thus limited by that agent’s experience and education. The more an agent learns, the more an agent realizes in horror what the agent doesn’t know, or at least one would hope it works that way. But some agents take a 3-hour class and proclaim themselves to be certified short sale experts without closing any short sales.
Moreover, short sale seminar classes seem to be gearing up at the moment, even though short sales are on the decline. To sell those short sale classes, the promoters proclaim that banks want to hire short sale agents to move underwater inventory but that’s not entirely true. As long as homeowners are making payments and unlikely to default, the bank doesn’t care. Also, banks have no shortage of real estate agents at the bank’s disposal.
Agents can be such suckers. I know this because I worked in the real estate seminar business some 35 years back. That well known real estate guru is dead now.
I audited a short sale class a few days ago and was astonished at the crap thrown out. Some of the information touted as fact was completely wrong. I won’t name the class except to say that I understand agents have few places to go to get this information and, if one is starving to death, even a handful of sand tastes good.
A big deficiency exists in the FHA short sale field. I see this by the questions asked online from frightened buyers. An FHA short sale happens when the existing financing is an FHA loan and the sale at market value is underwater. HUD (Housing & Urban Development) has set forth very specific requirements and guidelines. The first is to obtain the Approval to Participate in the short sale program outlined by HUD. To get that ATP, homeowners must be first be examined and evaluated to see if they fit other foreclosure alternative programs offered through HUD.
This happens even if there are no other programs that fit that homeowner’s situation. This happens even if the homeowner can no longer live in the home because all of the interior walls have been ripped out and the plumbing stripped. After evaluation of such a situation, which sounds completely insane, then the servicer will request a variance. You just have to know the rules and follow them. The short sale guidelines make sense to HUD. The strict rules don’t have to make sense to anybody else.
FHA also offers loan modifications, for example, only to owner occupants. If a potential seller does not occupy the home, the loan modification will not be granted. No investor loan modifications. End of story.
Yet, that did not stop a homeowner who rented out his home in Sacramento from trying. Even after I sent him the particular HUD guidelines, he still hoped they might give him a loan modification. Who am I to stomp on a homeowner’s desperate attempts to keep a home? I won’t squash those dreams, even if the dream is impossible. It’s not my house. Besides, the owner, even though he was not an owner occupant and has long since moved away, still needs to be evaluated for other foreclosure alternatives.
In my most recent Bank of America FHA short sale, we waited to receive the go-ahead on the Approval to Participate before putting that Sacramento short sale on the market and obtaining a short sale offer. It is the sensible and smart way to do an FHA short sale with Bank of America. Even so, it still took another 90 days to obtain short sale approval. And I’ve been working on short sales since the market crashed in 2005. I’ve closed hundreds, more than a 120 short sales last year alone. This Sacramento short sale agent is always looking for ways to streamline the short sale process.
If you’re sitting in a FHA short sale in Sacramento that seems to be dragging out and going around in circles, you probably have a listing agent on the job who doesn’t close very many FHA short sales. Experience is everything in this business.
