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MODULE #7Preforeclosure Sale Program Option
Goal- Enable Trainees to review, qualify and process the Preforeclosure Sale
Program Option
OIl

a defaulted FHA-insured mortgage.

Objectives - By the end of this Module Trainees will be able to:
Sale Program qualification criteria. , 2. Recognize supporting documentation Lenders must maintain in the claims review file. 3. Recognize Lenders accountability Appraisals. for the quality of Preforeclosure Sale FHA 1. Identify Preforeclosure

4. Be aware of the duration of the Preforeclosure 5. Be aware of Reporting Requirements

Sale Program time frames.

and consequences.

Reference Materials
Mortgagee Letter 2003-19 - Partial Claims: Program Changes and Updates Mortgagee Letter 2008-43 - Preforeclosure Sale Program - Utilizing the Preforeclosure Sale Loss Mitigation Option to Assist Families Facing Foreclosure Mortgagee Letter 2010-08 - HUD REO Appraisal Validity Period and Second Appraisals HUD Approved Housing Counseling Agencies i).ltp:llwww.hud.g9v/officcs/hsg/sfhlhcc/hcs.cfpl

Preforeclosure

Sale Program FAQ -

officcs/hollsing/sthhlsc/faqpfs FHA Appraisers - L"l.UQJ(PQ.rtal.huc,L_gov/hudQ.QrtaIlHUD?src=/groL!.I2.::;!.;,U:W..raisers HUDClips - b.!.!J2.://www.hud.gov/offices/adm/hudcljps/lcttcrs/rnongagec/ip.dcx.c[m Preforeclosure Sale Program Fact Sheet QUIZ
http://portal.hud.gov/hudport;)lIHUD?src=:::/[2rogram

7-1

Preforeclosure Sale Program

7-2

Preforeclosure Sale Program

Preforeclosure Sale Program

Loan Default

7-3

Preforeclosure Sale Program

Borrower

alification

Preforeclosure Sale Program

Partici

7-4

Preforeclosure Sale Program

Financial Ana

Preforeclosure Sale Program
..,rl'~n.a,r~'

Value

7-5

Preforeclosure Sale Program
I.I'rlrt.njDr'l,,\1

Value

Preforeclosure Sale Program

Pro

Condition

7-6

Preforeclosure Sale Program

Condition

(24 CFRPart

203.379)

Preforeclosure Sale Program

Condition of Title

7-7

Preforeclosu re Sale Program

Condition of Title

Preforeclosure Sale Program

Condition of Title

7-8

Preforeclosure Sale Program

roval to Parti

Preforeclosure Sale Program

Partici

on

ments

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Preforeclosure Sale Program

Parti

Requirements

Preforeclosure Sale Program

Contract

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7-10

Preforeclosure Sale Program

Contract

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Preforeclosure Sale Program

Contract

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7-11

Preforeclosure Sale Program

Contract

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Preforeclosure Sale Program

Contract

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7-12

Preforeclosure Sale Program

Duration

Preforeclosure Sale Program

Duration

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Preforeclosure Sale Program

Preforeclosure Sale Program

Earl Termination

7-14

Preforeclosure Sale Program

Failure to Com

a PFS

Preforeclosure Sale Program

Incentives

7-15

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Preforeclosure Sale Program

Claim Finn

Preforeclosure Sale Program

Re

rti

uirements

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Preforeclosure Sale Program

Erroneous Termination of

e Insurance

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PREFORECLOSURE SALES PROGRAM
The Preforeclosure Sale Program allows a Borrower 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, 2008-43 and 2010-08.

FACTS
• • • • • • Outright sale of mortgaged property to a third party and must be an "arms length" transacti on. Outstanding indebtedness includes; unpaid principal balance + delinquent interest + Partial Claim (if applicable). HUD will pay up to $1,000 incentive to the Borrower if closed within three months from the date of application; thereafter, the incentive is reduced to $750. BUD will pay an additional amount up to $1,500 for the discharge of junior liens after the Borrower'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-l for ail transactions that involve a new FHA-insured mortgage. Tiered Net Sales Proceeds requirement during the] 20 day marketing period, is applicable as follows: o For the first 30 days of marketing, Lenders 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 second 30 days of marketing, Lenders 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 remaining 60 days of the Pre foreclosure Sale marketing period, Lenders 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 oLender's title Insurance fee.

Revised - J une 22, 2011

7-19

(II

(II

Property Condition: o Properties that have sustained damage may be eligible for the Preforeclosure Sale Option. o If the cause of the damage is fire, flood, earthquake, tornado, boiler explosion (for condominium's only) or Lender neglect (i.e., surchargeable damages as defined in 24 CFR Part § 203.378) Lenders must obtain prior approval from the NSC at the address above. o Prior to seeking this approval, the Lender must obtain the government's estimate of the cost to repair the surchargeablc damage by contacting HUD's Mortgagee Compliance Manager Contractor. o BUD's Mortgagee Compliance Manager Contractor contact information can be found on the Internet at: o http://poltal.hud.gov/hudponal/HUD?src=/program_~offices/housinglsfh/nsc!mcm Under no circumstance should the Borrower be encouraged to default on their mortgage for the purpose of participating in the Preforeclosure Sale Program.

ELIGIBILITY
1)1

• •

The property must be owner-occupied, no "walk-a ways" or investment properties. Exceptions: when it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as rental investment, or used as a rental for more than 18months. The Borrower must be 31 days or more delinquent at the time of the Preforeclosure Sale closing. The Borrower must provide documentation substantiating a reduction in income or an increase in living expense, and documentation that verifies the Borrowers need to vacate the property (if applicable).

PROCEDURES
(1) Borrowers

who express an interest in the Preforeclosure Sale Option or who have been identified by the Lender as a qualified candidate for the Preforeclosure Sale Program must be mailed a copy of the revised Information/Disclosure F01111 HUD-90035.

(2) The Lender must obtain a standard "As Is" FHA appraisal which has been completed in accordance with the requirements of I-fUD Handbook 4150.2 (Valuation Analysis for Single Family One-to Four-Unit Dwellings). To this end, Lenders must: • Obtain a standard electronically-formatted appraisal from an appraiser on FHA's Appraiser Roster. The selected appraiser must not share any business interest with the Borrower or the Borrower's agent. Appraisals obtained by the buyer, seller, real estate agent, or other interested parties may not be used to establish the Fair Market Value of the property for the Preforeclosure Sale Program. It is also important to note that: Revised - June 22, 20 II

7-20

e

The appraisal must contain an "As-Is" Fair Market Value for the subject property: Effective April 1,2010, the appraisal will be valid for 120 days from the effective date of the appraisal; and o Distress sales may not be used by the appraiser to establish comparable values unless they represent the only comparables within reasonable proximity of the subject property. Provide a copy of the appraisal to the homeowner, sales agent, or HUD, upon request Lenders are reminded that in accordance with HUD regulations at 24 eFR Part § 203.365 (c) they are responsible for the accuracy of all documentation used in the Preforeclosure Sale decision, including accurate and complete appraisal information.

o o

In an effort to ensure that the most current Fair Market Value is used for the Preforeclosurc Sale, a Lender may obtain a new FHA appraisal, even if the property was appraised by an FHA Roster
Appraiser within the preceding
120 days.

To be reimbursed through BUD's claim filing process, the cost of the appraisal must be reasonable and customary for the market area where the appraisal is performed. The appraisal must be retained in the claim/servicing file, even if the Preforeclosure Sale is not approved or completed. (3) The Lender must obtain a title search or preliminary report verifying that the title is not impaired with un-resolvable title problems or with junior liens that cannot be discharged as permitted by HUD. (4) When an application is accepted an Approval to Participate form is used. The date of this form becomes the starting date of the Preforeclosure Sale participation. The Approval to Participate form must include the date by which a signed contract for sale must be obtained and minimum acceptable net sales price. • •
e

The Borrower agrees to show good faith in attempting to market and sell the property. The Borrower must perform all normal property maintenance and repairs until closing of the Pre foreclosure Sale. The Borrower must list the property with a licensed real estate broker, unrelated to the Borrower. The listing agreement must include a specific cancellation clause in the event the terms of the sale are not acceptable to HUD. to allow pursuit of the Prcforeclosure Sale.

(5) The Lender delays foreclosure

(6) The Preforeclosure Sale period shall be four months beginning upon Lender approval (automatically extended two months for Lenders in Tier 1; or there is a signed Contract of Sale, but settlement can not OCCUlTed the end of the fourth month). by

Revised - June 22,2011

7-21

Module 7 - Preforeclosure

Sale Program Quiz - FY 2012

Please darken the correct circle.
1. The Preforeclosure Sale Program may be extended to Borrowers who: A. Are in default or imminent default has been determined. B. Have negative equity as determined by an "As-Is" FHA Appraisal C. Are owner occupants o D. Have only one FHA-insured loan o E. Are not a corporation or partnership o F. All of the above

o

o o

Ref: Mortgagee Letter 2008-43, page 5

2.

The Preforeclosure Sale Appraisal: o A Must be an "As-Is" Fair Markel Value FHA Appraisal o B. Will be valid for 120 days from the Appraisal effective Date o C. May not allow Distress Sales, unless they represent the only comparable within reasonable proximity of the subject property. o D. All of the above.

Ref: Mortgagee Letter 2008-43, page 8 3.

C. 89%, 87%, and 85% D. 90%, 88%, and 86% Ref: Mortgagee Letter 2008·43, page 10

o o

Based on the length of time a property has been marketed for sale, please indicate the correct Tiered Net Proceeds Requirements. o A 87%,85%, and 83% o B. 88%, 86%, and 84%

4.

Until the Preforcclosure Sale transaction has closed, the Borrower must: o A. Maintain the property in "ready to show" condition B. Make basic property repairs C. Perform all normal property maintenance activities o D. All of the above

o o

Ref: Mortgagee Letter 2008-43, page 11

5.

The Preforeclosure Sale Program length of time that a Borrower may market their property is: o A. 2 months o B. 3 months o C. 4 months o D. 5 months

Ref: Mortgagee Letter 2008-43, page 13
Jun~')'

2()11

7-24

Module 7 - Preforeclosure

Sale Program Quiz - FY 2012

Please darken the correct circle.
6. Lenders have a pre-approved Extension of Time of two additional months to complete the Preforeclosure Sale if one of the following exists: o A. The Lender is in the Tier 1 category o B. There is an existing signed Contract for Sale, but the Settlement Date has not occurred by the end of the fourth month C. The Lender is in the Tier 2 category D. All the above

o o

Ref: Mortgagee Letter 2008-43, page 13

7.

Lenders may terminate the Bon-ower's participation within the Prcforeclosure Sale Program for any of the following reasons: A. Un-resolvable title problems o B. Borrower is not performing in good faith to market the property C. Significant change in property condition D. Re-evaluation of the Borrower's information reflects the case does not qualify for the Preforeclosure Sale Program

o

o o

Ref: Mortgagee Letter 2008-43, page 14 8.
Upon the Borrower's termination to participate within the Preforeclosure Sale Program, the Lender is required to prepare a written letter providing the: A. Reason for the Termination B, End of Participation Date C. Amount due for the Appraisal D. Amount due for the Title Search Ref: Mortgagee Letter 2008-43, page 14

o o o o
9.

o o o
10.

Lenders have days from the date the Preforeclosure Sale participation terminates to either initiate an alternate Loss Mitigation Option and/or initiate or recommence foreclosure. o A.30

B.60
C. 90 D. 120
M

Ref: Mortgagee Letter 2008 43, page 14
The Lender's Closing and Post Closing responsibilities are to ensure: o A. The final terms of sale are consistent with the purchase contract o B. Allowable settlement costs have been deducted from the seller's proceeds o C. Net Sales Proceeds will be equal to or greater than the allowable thresholds D. Form HUD·90052 is included in the Lender's claim/servicing file

o

Ref: Mortgagee Letter 2008 43, page 15
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2011

7-25

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