Need Assistance On Possible Short Sale
A lady who is looking to get out of her house was referred to me. Her home was up for foreclosure in '01 & again in '02. Her father helped her get out of foreclosure the first time and she negotiated with loss mitigations the second time. She originally purchased the property for $79,000 in '94. She currently owes (pay-off amount) $105,000. This is the only lien on the property. This is an FHA loan. Houses are selling in the area as high as $120's - $130's. However, this property is in need of a lot of work. It hasn't been kept up well at all. I've been in contact with the workout dept. for Country Wide and they just sent me the short sale infromation. I've pulled comps as low as $105,000 in the area.
My concern is with the amount of work that is needed to get this property to sell at FMV and the loan being an FHA loan that this wouldn't work especially learning about FHA's requirements 10% difference in value between the as-is and ARV.
Am I reading into this wrong? How will the 63% ratio play apart in this deal? Is this a short sale deal?
Any insight would be appreciated.
Thanks 8-)
I've spoken to HUD about this... and the 10% repair threshhold had applied to repairs resulting from catastrophic events such as hurricane, fire, or flood.
But I'm not sure that even they know for sure.
Though they weren't clear, I supposed it had something to do with presumed insurance claim/disbursments.
Some loss mit reps have interpreted the 10% to mean any repairs including deferred maintenance.
If the property has an as-is value of $105,000, I believe that the costs for indicated repairs could be equal to $10,500 before that figure would even come into play.
I just (September) completed an FHA short. My estimate of value was $200,000 in it's as-is condition... citing about $30,000 in needed repairs. The lender's BPO came in at $160,000. They approved the sale at $139,200 and accepted $132,000 as payment in full. The house just appraised (no work done) for $230,000.
Go figure.
The 63% ratio in your situation is a non issue. She owes $105,000. It's worth about $105,000. FMV divided by mortgage balance must be greater than or equal to 63%. You're there!
SSPro:
Thanks for your response. In reading through other topics posted I'm kinda confused. In dealing with the 63% rule is it the FMV of the home or the as-is value of the home divided by the balance owed on the home. In different readings it is referred to as both FMV and as-is. Clarity please.
Secondly, the home is in need of $25,000 in repairs or more.
In addition, I'm not saying the as-is value is $105,000. I believe it is lower than that maybe around $70,000 or $75,000 due to the number of repairs needed. The $105,000 was a low comp I pulled on houses that recently sold.
So, applying what I think I know from the info I have read let's see if I get the idea.
Let's say she owes $105,000
The BPO or as-is value comes back at $70,000
That would put me at 67% so I'm good on the 63% rule, correct?
Now the lender will not accept less than 82% of the BPO or as-is value, correct?
$70,000 x .82 = $57,400
I would be safe making an offer not lower than $57,400 in this scenario, correct?
If I am reading into this wrong someone please get me straight.
I'm trying to leave what little hair the SSPro has in his head.
Thanks
Sorry, an additional question.
When is the BPO ordered on a potential Short Sale?
Must I iniate the request with the mortgage company?
the FMV (fair market value) of a given property is the value of the property. Today. In it's as-is condition. Not tomorrow. Not after repairs have been made. But today.
FMV answers the question, "What's it worth, today, with all it's faults in it's as-is condition?" Of course, estimating FMV is an opinion offered by an experienced
appraiser.
If the property is worth $70,000 and all parties agree that it's worth $70,000, and the payoff is $105,000...
then this ratio is 66%.
Please note that HUD needs to net not less than 82% of the confirmed FMV.
Making an offer of 82% of the FMV won't necessarily result in a net of 82%. The offer should be at 87% of FMV.
Once the application for short sale consideration has been essentially completed by the Seller, the mortgagee will order another BPO (they have several prepared over the course of the foreclosure) but ask for an interior BPO. They may order an appraisal as well.
[addsig]
SSPro,
Understood!!!!
I think I get the picture. I should not go lower than 87% of the BPO so that the lender would net not less than 82% after fees and other incidentals are subtracted.
So the most important instrument in the short sale is the BPO. That will determine if there is a possible Short Sale.
Would you normally get an appraisal completed, before the mortgage company orders the BPO, as a part of due diligence?
Thanks SSPro you have shined light on an otherwise cloudy situation!!!!!!!!!
Personally, I wouldn't spend money on an appraisal... but I would perform my own appraisal (I am an appraiser) early on so that I can articulate a defendable position in my Proposal.
SSPro & other experts,
I just completed reading HUD's Nationwide Pre-Foreclosure sale procedures. In this document it states that the "Net sale proceeds must be atleast 87% of the properties as-is appraised value and 70% ratio of appraised value to outstanding indebtness" in order to meet short sale criteria.
My question is how is it that everyone on this site refers to 82% Net sale proceeds and 63% ratio of appraised value to outstanding indebtness when it clearly states otherwise in its own procedures?.
This publication I read was dated September 30, 1994. Has there been an update of the PFS procedures since that time?
If so, could someone provide forwarding information so it may be viewed.
1994?
The reference materials (for FHA preforeclosure short sales) I rely upon are circa 2000. The most recent conversations I've had with FHA case managers support the 82% - 87%.
However, this is a dynamic industry and things can change overnight. If I were you, I'd try more current reference materials.
HUD has oversight over many different loan programs, including FHA. Perhaps the information you have read applies to loans under HUD, but not specifically FHA insured loan programs.
Good Question.
The Short Sale Pro
What is the CIRCA 2000?
Is there a link that you could provide so other individuals could view the information you are talking about?
Thanks
"circa" means "about"
the most recent info I have from FHA servicing manual updates is from the year 2000. No site to reference. Just text and updated reference materials in my library.