FHA PFS And The 10% Threshold
Bureaucracy!
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.[ Edited by TheShortSalePro on Date 01/20/2004 ]
If I can add my 2 cents in order to make this picture more understandable:
How does the lender arrive at the 63% ratio of "As Is" appraised value to outstanding debt and the 82% of estimated sales proceeds to "As Is" appraised value?
To arrive at the 63% ratio:
• Divide the "As Is Appraised Value" (APV) by the outstanding Debt. If the result is 63% or higher, that criterion has been met.
• Total Delinquency minus(Allowable Expenses) divided by (As-Is Appraised Value) = Net Sales Proceeds
If a Partial Claim subordinate lien is in place:
• Total Delinquency minus (Allowable Expenses) minus (Partial Claim payoff amount) divided by (As-Is Appraised Value) = Net Sales Proceeds
• The result of this calculation (Net Sales Proceeds) must = or be > than 82%. Remember that NO Variances can be granted as these percentages, (i.e., 63% and 82%) are the lowest HUD allows.
Also,
Funds that result in percentages that exceed the minimum allowable percentages belong to the DHUD, are not negotiable, and cannot be used to allow benefit to the Buyer or Seller.
Hope this helps,
Dmitry.
[ Edited by Dmitry on Date 01/22/2004 ]