Clearly, many if not most short sales involve a loan presently in default. As well, many times a short sale might involve a current borrower who can currently afford the payment. In several other situations, a seller may be “just hanging on” and the smallest thing could put them irreparably behind on their loan. Welcome to “eminent danger of default.”
In a hardship letter for a short sale (also known as short payoff), if a borrower/seller is currently not in default but can justifiably make the case that it is nearly unavoidable despite their willingness if circumstances were otherwise, they can proceed to conduct a short payoff/short sale (pursuant to Freddie Mac’s Single-Family Seller/Servicer Guide, Volume 2 Chs. 64-69: Servicing Nonperforming Mortgages Chapter B65: Workout Options B65.37: Eligibility requirements (08/20/09) – this can be viewed by going to http://www.freddiemac.com/singlefamily/ and searching the AllRegs link). I’m referencing Freddie here buy the GSE’s (or government owned entities) typically dance to the same tune.
Specifically, to be eligible, Freddie requires that the borrower:
1. Be experiencing or have experienced an involuntary inability to pay, unless the Mortgage is secured by a Manufactured Home and the Borrower has a buyer for the property
2. Be delinquent in his or her payments, or in imminent danger of default
3. Complete Form 1126, Borrower Financial Information
4. Be cooperative and allow access to the interior of the property for a BPO
5. Have had the property listed by a real estate broker at a price based on a market sales comparison using the as-is value with a 90-day marketing timeframe
6. Make the maximum possible contribution toward any deficiency from the sale in cash and/or a promissory note (though this will largely be governed by HAFA after April 5, 2010)
7. Not have entered into a program or arrangement where a third party takes title to the property and arranges a short payoff in exchange for a fee
8. Waive reimbursement of any Escrow, buydown funds or prepaid items and assign any insurance proceeds to us, if applicable
Interestingly, Freddie Mac maintains the requirement to be late for loan modification purposes. It doesn’t matter if default is eminent in this situation. To modify they have to have current income, be late on their payments and have to not be eligible for the Freddie Mac Relief Refinance (in that unlikely event that they qualified and were late on their mortgage).
It would therefore be wise to take a considerable amount of time in crafting the hardship letter appropriately to define the case for eminent default if such a situation exists (wise in any case but especially where the loan is current). Loan servicers will be evaluating income to be sure that the mortgage payment, expressed as a percentage of the gross income, is meaningfully in excess of 31% or they’ll be looking for significant life changes such as the loss of a job or something of that nature. If such situations exist, according to Freddie Mac’s instructions to its loan servicers, a borrower may proceed to a short payoff without being currently in default.
Charles Dailey – Branch Manager, Loan Officer, Certified Military Housing Specialist – CA DOC, MN DOC & WI DFI
The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.
- What Does Renewing Your Tabs in MN Have to Do With Buying a Home
- Why a Fed Rate Hike Won’t Affect Mortgage Rates in the Short Term
- Long Term Mortgage Rate Forecast Going Into Winter Market
- Fannie Mae and Freddie Mac Near Deal to Bring Back 3% Down Financing
- Top Three Reasons to Feel Good About Buying a Home in the Twin Cities
- Today’s Rate vs. Today’s Rates – Mortgage as a Second Language
- The iLoan Lock and Shop Program
- Fannie Mae Increases Down Payments on MyCommunity® and Standard Loans
- The FHA 1 Year Waiting Period After Short Sale, Bankruptcy or Foreclosure – Back to Work
- Planning Your Home Purchase With a Mortgage Recast