She Can Short Sell

I am a realtor and met with a lady about selling her house.  She purchased it, with and FHA loan in 2004.  She moved to a new home in 2008 and rented it out (a no-no).  She now wants to sell it, due to bad renters and is losing money each month on it.  Problem is she is upside about 40K.  She was 4 months behind and the bank is modifying the loan to get her caught up, but, she still wants to sell.  The bank knows it is FHA.  Will they (wells fargo) work with her on a short sale.  I understand the rules if it was owner-occupied, but, it isn’t.  Any thoughts?

Jim

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Hello Jim,

Per the most recent FHA Short Sale Mortgagee Letter regarding Non-Owner Occupant Exceptions:

“Mortgagees are authorized to grant reasonable exceptions to non-occupant mortgagors when documentation indicates a property was not purchased as a rental or used as a rental for more than 18 months, immediately preceding the approval into the PFS program.”

So, the technically correct answer is that she can short sell at this point, but once it gets to be 18 months of having rented the property she would be barred.  Schedule E of her 2008 federal tax returns and a borrower certification would be used to determine the eighteen month requirement.

I can tell you firsthand that lenders, contrary to the desires of HUD, are not following the requirements of HUD ML 2008-43.  That can work in the favor of closing your short sale and also against it depending on the circumstances.  Whenever you’re at a standstill with an FHA servicer on an issue such as this, it’s always nice to be able to call HUD’s National Servicing Center Hotline in Oklahoma at 888.297.8685.

Thanks for the questions and she can short sale by the seashore.

Paul