10% Difference Between As-Is And After-Repaired Value On FHA Kills Short Sale?

Comments(1)

• 
  bgrossnickle26th October, 2004

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  http://www.hud.gov/offices/hsg/sfh/nsc/faqpfs.cfm
  
  Question 3: How does the lender arrive at the 63% ratio of "as is" appraised value to outstanding debt and the 82% ratio of estimated sales proceeds to appraised value?
  
  Answer: To arrive at the 63% ratio:
  
  Divide the "as is appraised value" (APV) by the outstanding indebtedness (principal balance plus delinquent interest). If the result is 63% or higher, that criterion has been met. If a Partial Claim subordinate lien exists the Partial Claim payoff amount should be added to the outstanding indebtedness to calculate the 63% ratio. Total outstanding indebtedness minus (allowable expenses) divided by "as is appraised value = determines if 63% ratio met.
  
  To arrive at the 82% ratio:
  
  Contract sales price minus (allowable expenses) minus Partial Claim/junior lien (if applicable) divided by ( as is appraised value) = net sales proceeds. Net sales proceeds must be equal to or greater than 82%. Remember that no variances can be granted as these percentages, ( i.e. 63% and 82%) are the lowest HUD allows.
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  http://www.hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=MLET&s1=(94-45)[no]&op1=AND&l=100&SECT1=TXT_HITS&SECT5=MLET&u=./legis.cgi&p=1&r=1&f=G
  
  Although mortgagees have some discretion in this area, when the cost of repairs exceeds 10% of the property's "as-is" appraised value, the lender must deny the pre-foreclosure sale option.
  
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  (4)The net sale proceeds must be at least 87% of the property's as-is appraised value. "Net sale proceeds" is defined, under the PFS procedure, as the gross selling price minus the following:
  
  (a) sales commission (customarily 6% or less);
  (b) consideration payable to Seller (normally $750-1000);
  (c) amount (to come from sale proceeds at settlement) to discharge any junior liens (not to exceed $1000); and
  (d) local/State transfer taxes/stamps and other customary seller's closing costs.
  
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  If the property's "as-is" appraised value meets the criterion regarding the minimum proportion to the homeowner's present unpaid balance (principal and accrued interest only), as determined by the Secretary (a figure of 70%), the mortgagor is notified that he has been accepted into the PFS procedure, and being given time to market his property, during which the foreclosure sale will be delayed.
  
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  I wanted to share this with those who are trying to structure FHA preforeclosure short sales.
  
  Eligibility will be determined using the NET PROCEEDS, which must be 82% of the "as-is" appraised value. The ratio of the appraised value to outstanding mortgage indebtedness must be greater than 63%.
  
  ]"Properties which have sustained serious damage (flood, fire, earthquake, tornado) are NOT eligible for PFS if the cost of repair exceeds 10% of the "AS REPAIRED" value"
  
  In my experience, most needed repairs result from deferred maintenance, NOT a catastrophic enent. I called HUD's National Servicing Center in Oklahoma for an interpretation of the Rule, and to ascertain if the costs to cure deferred maintenance could be an exception to the Rule.
  
  I was advised that under NO circumstances would the 10% threshold be waived. This rigidity is due to the mortgagee's FHA claims for reimbursement procedure.
  
  So, be mindful of the scope and costs for repairs you include in your FHA application/Proposal for short sale consideration.
  
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