• When Can a Short Sale Seller Buy Again?

    January 3, 2010

    Tags: , , ,
    Posted in: arizona market conditions

    Thanks to one of my favorite Mortgage Consultants, here’s some very interesting information for those involved in or contemplating a short sale of their home.

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    HUD recently released its ruling on when and how soon a borrower may use FHA financing after surviving closing a short sale. Here is how it is going to work (effective immediately).

    1. A buyer can immediately purchase a home if they executed a short sale on a previously owned residence, IF:
    • They were current on their mortgage and other installment debts at the time of the short sale (no 30 day late payments in previous 12 months from time of new loan application for new purchase), OR
    • The proceeds from the short sale serve as payment in full.

    2.  A buyer must wait 3 years from the time of a short sale, IF:

    • They did a short sale simply to take advantage of declining market conditions, AND
    • They are looking to purchase at a reduced price, a property that is similar or superior and within a reasonable commuting distance from the property that was sold short.
    • They were in default at the time of the short sale

    The exact methods being used to determine bullet 1 of reason 2 were not discussed in the mortgagee letter. However, it is expected that they will need to explain and document a legitimate reason as to why the short sale was necessary. That reason would need to indicate that the client did not short sale merely to adjust their mortgage liability to current market values by selling one house short and buying a very similar or “better” house in the same marketplace.

    Exceptions may be made to bullet 3 of reason 2 IF:

    • The default was due to circumstances beyond the borrowers control (death of primary wage earner, long term illness etc…), AND
    • The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrowers control that caused the default.

    In my personal opinion, this new HUD ’statement of clarification’ provides many more questions than answers. Time will only tell, but I’ll be attempting to keep you updated.

    Image courtesy of ebmorse.

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