Impacts of Short Sales and Foreclosures

Action Requirements
Bankruptcy (All Except Chapter 13) Conventional:   4-year time period from either the discharge or dismissal date of the bankruptcy.FHA / VA:  2-year time period from the discharge of the bankruptcy.  Borrower must have re-established good credit.
Chapter 13 Bankruptcy Conventional: The time period for Chapter 13 bankruptcy actions is measured as follows:• 2 years from the discharge date, or• 4 years from the dismissal date.FHA / VA:  Acceptable with 12 month acceptable payment history of the bankruptcy and permission from the court.  Credit must be re-established outside of the bankruptcy. 
Exceptions for Extenuating Circumstances (see definition below) All Bankruptcy Actions Conventional: The 2-year time period will be measured from the bankruptcy discharge or dismissal date. No exceptions are permitted to the 2-year time period after a Chapter 13 discharge.FHA / VA:  Less than 2 years but not less than 12 months may be considered with extenuating circumstances.
Multiple Bankruptcy Filings Conventional:  5-year time period from most recent dismissal or discharge date required for borrowers with more than one bankruptcy filing within the past 7 years.FHA / VA:  Same guidelines as Bankruptcy above.
Exceptions for Extenuating Circumstances (see definition below) Multiple Bankruptcy Filings Conventional:  3-year time period from the most recent discharge or dismissal date.Note: The most recent bankruptcy filing must have been the result of extenuating circumstances.FHA / VA:  Same guidelines as Bankruptcy above.
Foreclosure Conventional: 7-year time period from completion date.FHA:  3-year time period from completion date.VA:  2-year time period from the completion date.  Borrower must have re-established good credit.
Exceptions for Extenuating Circumstances (see definition below) Foreclosure Conventional:  3-year time period from completion date.Additional requirements that apply after 3 years up to 7 years following completion date:

  • 90% maximum LTV/CLTV/HCLTV
  • Owner occupied purchase
  • All occupancy types for limited cash out

 

FHA:  Less than 3-year time period but not less than 2 years may be considered with documented extenuating circumstances.

VA:  Less than 2 years but not less than 12 months may be considered with extenuating circumstances.

Deed-in-Lieu of Foreclosure Conventional:Time period from completion date: 

  • 2 years – 80% max LTV/CLTV/HCLTV
  • 4 years – 90% max LTV/CLTV/HCLTV
  • 7 years – LTV per standard guidelines

 

FHA:  3-year time period from completion date (date deed-in-lieu executed).

VA:  2-year time period from the completion date (date deed-in-lieu executed).  Borrower must have re-established good credit.

Exceptions for Extenuating Circumstances (see definition below) Deed-in-Lieu of Foreclosure Conventional:  2 years may be considered with extenuating circumstances.  Maximum LTV/CLTV/HCLTV 90%.FHA:  Less than 3 years but not less than 2 years may be considered with extenuating circumstances.VA:  Less than 2 years but not less than 12 months may be considered with extenuating circumstances.
Time Period After Preforeclosure Sale Conventional: Time period from completion date: 

  • 2 years – 80% max LTV/CLTV/HCLTV
  • 4 years – 90% max LTV/CLTV/HCLTV
  • 7 years – LTV per standard guidelines

 

Note:   A two-year waiting period is permitted if extenuating circumstances can be documented, with maximum LTV/CLTV/HCLTV ratios of the lesser of 90% or the maximum LTV ratios allowed for that loan type.

FHA:  3-year time period from completion date.

VA:  2-year time period from completion date.

Additional Requirements: None

Note: No exceptions are permitted to the 2-year time period due to extenuating circumstances.

Time Period After Short Sale Conventional: Time period from completion date: 

  • 2 years – 80% max LTV/CLTV/HCLTV
  • 4 years – 90% max LTV/CLTV/HCLTV
  • 7 years – LTV/CLTV/HCLTV per standard guidelines

 

Note: Exceptions are permitted to the 2-year time period due to extenuating circumstances.  Maximum LTV/CLTV/HCLTV 90%.

VA:  No seasoning required as long as the following guidelines are met:

  • The borrower’s has no lates on the previous mortgage
  • The borrower has not entered into any agreement with the previous lender or servicer that obligates them to repay any amount associated with the short sale, including a deficiency judgment

 

FHA: 

 

  • Guidance on Short Sales:  Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to:
    • take advantage of declining market conditions, and
    • purchase, at a reduced price, a similar or superior property within a reasonable commuting distance

 

  • Borrowers current at time of Short Sale: Borrowers are considered eligible for a new FHA-insured mortgage if:
    • they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
    • the proceeds from the short sale serve as payment in full.

 

  • Borrowers in default at the time of Short Sale:  Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.

 

  • Refinancing with Short Pay Off:  FHA will insure the first mortgage where the existing note holder(s) write off the amount of indebtedness that cannot be refinanced into the new mortgage due to a decline in property value and/or a reduction in income.
Short Sale Requirements A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor (seller).  A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.  When a short sale is involved, the documents listed below must be submitted to Underwriting for review along with the complete file:

  • Short Sale agreement with the underlying lender
  • Listing agreement OR MLS Listing Summary on the subject property
  • Rental agreement for subject property, if applicable
  • Earnest money agreement for the subject property
  • 1004 Appraisal
  • Preliminary title report
  • Estimated HUD-1 for both buyer and seller

Information provided by Windermere Financial Services. I advise all Sellers to consult a professional Accountant and Attorney to learn more about the individual impact  of  Short Sales and Foreclosures.

Posted on January 10, 2012 at 10:33 pm
Susan Grosten | Category: Uncategorized

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