PREFORECLOSURE SALES PROGRAM
The Preforeclosure Sale Program allows a Mortgagor in default to sell his or her home and use the sales proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount owed. Ref: Mortgagee Letters 2003-19 and 2008-43.
FACTS
- Outright sale of mortgaged property to a third party and must be an “arms length” transaction.
- Outstanding indebtedness includes; unpaid principal balance + delinquent interest + Partial Claim (if applicable).
- HUD will pay up to $1,000 incentive to the Mortgagor if closed within 3 months from the date of application; thereafter, the incentive is reduced to $750.
- HUD will pay an additional amount up to $1,500 for the discharge of junior liens after the Mortgagor’s incentive has been applied.
- HUD allows all reasonable cost of the sale including up to 6% sales commission, local/state transfer tax stamp and other customary closing cost.
- HUD allows up to 1% of the buyer’s mortgage amount for closing costs to be included in the “Seller’s Costs” on the HUD-1 for all transactions that involve a new FHA-insured mortgage.
- Tiered Net Sales Proceeds requirement is applicable as follows:
o For the first 30 days of marketing, Mortgagees may only approve offers that will result in minimum net sale proceeds of 88% of the “As-Is” appraised Fair Market Value.
o During the next 30 days of marketing, Mortgagees may only approve offers that will result in minimum net sale proceeds of 86% of the “As-Is” appraised Fair Market Value.
o For the duration of the Preforeclosure Sale marketing period, Mortgagees may only approve offers that will result in minimum net sale proceeds of 84% of the “As-Is” appraised Fair Market Value.
- Unacceptable Settlement Costs:
o Repair reimbursements or allowances;
o Home Warranty Fees;
o Discount points or loan fees for non FHA-financing; and
o Lender’s title Insurance fee.
o Properties that have sustained damage may be eligible for the PFS option.
o If the cause of the damage is fire, flood, earthquake, tornado, boiler explosion (for condominium’s only) or mortgagee neglect (i.e., surchargeable damages as defined in 24 CFR Part § 203.378) mortgagees must obtain prior approval from the NSC at the address above.
o Prior to seeking this approval, the mortgagee must obtain the government’s estimate
