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HUD's Pre-Foreclosure Sales Program

HUD’s Pre-Foreclosure Sales Program

When homeowners facing difficulties have exhausted all options to avoid foreclosure they often consider a short sale, as a solution. In this type of transaction, the lender agrees to accept the proceeds from the sale as payment for the debt even if the home is sold for less than what the homeowner owes on their mortgage.

For homeowners with an FHA-backed loan, there is a short sale program through the United States Department of Housing and Urban Development (HUD). This program, known as Pre Foreclosure Sales (PFS) allows homeowners in default to settle their mortgage debt even if the home value is lower than what’s owed.

The sale must be conducted in an “arms-length” manner meaning that all parties involved in the sale, including real estate agents, have no relationship.

Additionally, HUD has requirements regarding proceeds;

In the first 30 days of listing the property for sale offers must be accepted only if they amount to at least 88% of the appraised value.
During the following 30 days offers must be, for 86% of the appraised value.

During the remaining 60 days that the house’s, on the market the seller can only consider offers that’re at least 84% of the appraised value of the property.

Additionally, there are concessions that the seller cannot make to the buyer;

1. Repair allowances.
2. The cost of a home warranty.
3. Discount points on loans than those backed by FHA.
4. Payment of the lenders title insurance fee.

To be eligible for the HUD Pre Foreclosure Sales program certain requirements must be met;

1. The house must be occupied by its owner with an exceptions for homeowners who were forced to move due to circumstances like job transfer, death, job loss or divorce long as they didn’t rent out their home for more than 18 months.
2. Homeowners need to provide proof of their inability to pay off their mortgage and demonstrate their need to vacate the property.
3. At 30 days worth of mortgage payments must have accumulated by the time of sale closure.

There are advantages associated with participating in the HUD Short Sale Program despite being in a mortgage situation;

1. The proceeds from the sale although less, than what’s owed on the mortgage fully. Resolve all outstanding debt obligations.

This information should provide some comfort to homeowners who live in states where deficiency judgments are permitted. It assures them that they will not be held responsible, for any remaining amount owed in the future.

If the short sale is completed within 90 days from the date of application HUD may offer an incentive of up to $3,000 to the seller. However if it takes longer for the home to sell the incentive amount could be reduced.

HUD allows for a real estate agents commission of up to 6% so you won’t have to navigate the process without representation. Additionally it permits closing costs.

In cases where the buyer is using an FHA backed mortgage HUD permits the seller to contribute 1% towards the buyers closing costs from the proceeds.

If you believe that you are eligible, for HUDs Pre Foreclosure Sales program I recommend reaching out to a foreclosure avoidance counselor approved by HUD through their website.

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