I received an email yesterday from one of my short sale sellers who had closed an Elk Grove short sale on October 30th and bought a new home on December 30th, 2009. This was before FHA issued its new guidelines. The new FHA guidelines this year say FHA will approve a loan for a seller who sold on a short sale, providing the seller was not delinquent on the mortgage. I've been looking for a lender who will do this because none of my sources is funding such loans.
The client was excited to share the news, and added that he bought the home without an agent, using the help of a "sales associate." While I am not thrilled that the client was hoodwinked into believing he did not need to hire his own buyer's broker and therefore did not call me, I am super jazzed that he bought the home. His email made me realize that I need to be more diligent in letting my clients know that I can represent them if they want to buy a new home from a builder.
The last new home construction that I negotiated was a model home. Buying a model home from a builder is a bit complicated because those homes involve upgrades already in place. But builders in Sacramento are hurting financially and are willing to wheel and deal at the moment. Not only did this particular single woman home buyer get her model home at a terrific price, she also received all of the furniture for free. It pays to hire an agent, and it doesn't cost a buyer one thin dime.
The thing that struck a chord with me in my client's email was the fact a bank made him a loan 3 months after his short sale. This is what happened: Even though he was current on his payments to Wells Fargo, the bank made a notation on this client's credit report that the second loan was charged off. We tried to get that verbiage removed from the short sale approval letter, but Wells Fargo refused. After the short sale closed, Wells Fargo reported the loan as a charge off with a balance owing. The client called Wells Fargo and insisted that the loan should be reported with a zero balance because the debt was forgiven. So, Wells Fargo changed the reporting status to: Paid in Full for Less Than Agreed with a zero balance. After that adjustment, the client's FICO score jumped from 651 to 740.
This is why it's a good idea for sellers who do short sales to check their credit reports after closing. Another not-so-lucky client had Bank of America file a foreclosure against her after the loan was paid off as a short sale. And she was current on her mortgage payments when it closed. That was a real mess to untangle.
However, if you are thinking about buying a home after a short sale, and if your payments are current, you might want to contact Flagstar Bank and ask about an FHA loan. Flagstar is funding loans for buyers after selling as a short sale. The minimum FICO score required by Flagstar is 650.
---
Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.
The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice. It could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.
Elizabeth: THe FHA guidelines certainly sound like reason enough to not miss any mortgage payments during a short sale if you can avoid it. I hate that there is a misconception that you HAVE to miss mortgage payments in order to do a short sale. That's not been my experience at all.
I also have a lender who is able to work this out, provided no payments are missed. She's told us that it takes a while for those negative reports (paid less than owed) to impact the score. I personally haven't gone through it, but it's one more reason for folks to work out a short sale with the lender, rather than let it go to foreclosure.
Elizabeth: That is great advice about checking the credit report. I'm sorry that the client didn't call you; that sometimes makes me feel badly.
Elizabeth - Yes, it is true that Flagstar will do a loan for buyers who have had a short sale unfortunately though, the few times I've been approached by those who have had a short sale, their ficos have tanked and they have other credit issues.
Granted for those occassions like your former client, it is a good opportunity to own again. However, I'm finding that situation to be the exception and not necessarily the norm. Kudos for your client though to be able to own again. A great reminder that a short sale is not necessarily the end to ever owning a home again.
On another note, I recently spoke to someone who was also trying to get her short sale to read "paid as agreed, less than full" instead of "charge off" and isn't having any luck. She's now appealing to the bureaus to change it with documentation that she has a zero balance. I'm thinking she is going to have to legally go after the lender for them to change the status. Have any of your short sale clients had this same issue?
Wow ... that sure helps understand the impact of a short sale vs. foreclosure. Hey ... I was wondering if you had a chance to see this blog, and if you could comment on it. Mama Liz's Blog.
The fact a short-sale seller is able to buy a new home not long after, demonstrates that life does go on! During in the early 1990s housing downturn, buyers who had experienced foreclosure or bankruptcy, were able to buy within two to three years. Not all of them, but many of them!
Wow, that is great. I am not surprised totally as I thought this may shift in the months and years ahead. That is a huge jump in their credit score.
I'll be telling my friends who closed a short sale to check their credit report. What a great idea.
PS- I was out this evening, but I TiVo'd to watch in the morning.
I thought most banks would not accept a short sale til a person's mortgage was late several months! I have heard this several times recently! Sounds good maybe peolple will find homes that will not be over extending thier budget!
HI Elizabeth, this is great news, will alert my clients. thanks for sharing the info about Flagstar.
The title sounds good but as usual the devil is in the details.
It is extremely hard to get short sale approved being current on payments. I know just several people who were lucky to do that. Their credit went down 40-50 points which is close to nothing for them being in upper 700 before doing short sale.
Thank you for post, Elizabeth. It is always good to read good news :)
Hello:
That FHA rule is stupid -- how many short sale sellers are NOT behind on their mortgage payments? Silly.
What a catch 22 this is for FHA short sellers - the HUD FHA PFS guidelines REQUIRE the seller to be in arrears!!!
This is very interesting Elizabeth. I didn't know this was even possible. Thankd for sharing the info.
Elizabeth,
Thanks for sharing this. I have a client who this will be perfect for. There are few that have had the ability to keep paying but it's great that the ones that do may be rewarded for it.
Elizabeth, this is another example of how the rules keep changing. Good for you and for your client for checking their score and being diligent in what it took to change it.
Wow! Three months! There are great things happening. While this is not the norm, it is a great opportunity for someone to get out of an unaffordable home and into one that they can comfortably maintain. It sounds like everything was above board and that it was a win win for all concerned. That is a refreshing twist considering how many have lost in recent years. :-)
First of all, most people selling SHORT are NOT up to date on their mortgage, so my guess is that will be a VERY small percentage that would even qualify! In addition, like many other things with Government Regulations, it DOESNT MATTER IF FHA SAYS it is okay.....YOU HAVE TO GET THE FUNDERS TO FUND under those conditions, and quite frankly, with the HEAT they have taken...I dont BLAME them for being apprehensive.. Many funding sources have different quidelins as you know...so just because one will, it doesnt mean the others will!
That said, this is another fine example of "cart before the horse"...I dont think ANYONE saw this as a potential issue when they starting changing the rules! You bring up very interesting points.
Flagstar though has been on the "watch" list for sometime, and I would urge your readers that IF THEY contact Flagstar, to speak to an underwriter directly and find out if "they will buy it".
Congrats on the feature..D
You're nice to have not been so annoyed to write a post about the short sale seller buying without you!
Wow! 3 months after a short sale? That's amazing. Not a huge fan of Flagstar but will def keep them in mind for my SS sellers who want to buy again fast. Thanks for sharing.
Thanks for sharing. It is worth the effort to try to clean up the credit reports after a short sale transaction.
I hadn't heard of this - it's good, I guess, although it leaves 'paid as agreed' open to all kind of interpretation!
I think this would be a difficult career path to work with short sellers after the deal has closed. What you describe is an anomaly not a normal short sale. Of the last one hundred short sales I have done maybe one would fit this profile, and it would have taken a little smoke and mirrors to get it done. It also seems that they bought a house without expert advice, which is a prescription for another short sale coming.
"Fool me once, shame on you. Fool me twice, shame on me!" Should Short Sales sellers be allowed to buy again so quickly? I think we all need to bring stability back to our still fragile economy. Is this the way to do it?
People should monitor their credit anyway! But especially if they have a significant event such as a short sale. It was a shame they had to twist Wells' arm to get them to tell the truth.
I seem to have a high proportionate number of short sale sellers who are current. I don't know if that's because many short sale sellers are perhaps a bit more responsible than those who simply walk away from their homes or if it's because they contact me prior to going into default, meaning they are simply in the information gathering stage, and I'm one of those people they get information from.
I'm not the last agent they call; I'm generally the first agent they call. I don't rush out to list a short sale. I prefer that my sellers explore all of their options, and get tax and legal advice first. So, by the time they go on the market, they are generally fully prepared. People who prepare in advance probably tend to stay current.
I'm a bit confused on this. It appears to me that the short sellers were allowed a short sale because perhaps the value of their home was less than the amount owed which has not been a valid reason in the past. Did I miss something on why they were allowed to short sell?
I couldn't agree more. We've got be be diligent for our clients sake and it is vital to future financing options to review your credit report after a short sale.
Hi Elizabeth - that's alot of good stuff you packed into your note - THANK YOU for sharing!!
This is really good information, thanks for sharing!
This is great information, thanks for sharing!
My company will also fund loans after a short sale, as long as payments are on time, and they meet the min credit score of 620
Thanks, Elizabeth, another great piece of information. This will be something my clients can use in the near future!
This is great info to know! I have a friend in a short sale situation. I'll pass this info. on to him!
I can see for relocation clients that this would be fabulous. That is one of the worst things for people who lose their jobs but move across the country for another one, but can't buy a house because they are underwater.
Very good information! The sad fact is that there are a number of different sources telling these homeowners that they have to be late in payments before they can be accepted for a short sale. This is definitely not the case and more homeowners need to be aware of this.
Thanks Elizabeth for the interesting and informative post.
Thank you for posting on the fact that Flagstar is doing this. This is great information for people who are in short sale for relocation and other reasons but who are not behind in their mortgage.
This is really interesting information, thank you for sharing. It is nice to see some help for these sellers instead of seeing them blackballed.
AND YET, I HAVE TROUBLE PLACING A LOAN FOR A RELOCATING BUYER WITH EXCELLENT CREDIT, PUTTING NEARLY 50% DOWN AND A DTI UNDER 40%. If you are a loan officer reading this, do not call me, I already have someone working on it, and I do not want to waste your time.
I am happy for your clients, but where is the sense in this scenario?
That is such great news for the buyers out there! It's tough for people to complete the short sale, it's nice to hear there is a light at the end of the tunnel for them!
Elizabeth - Amazing post! I bet that we are going to find the rules for lending to those who have sold as a short sale relaxed in the coming months. While I may personally disagree with it except under very narrow circumstances, I think the real estate market needs those people to come back in and buy to keep the juggernaut moving. Thanks for the informative post!
Very interesting Elizabeth!! The rules are going to have to be relaxed over the next couple of years and a down payment will be more important than ever if we move away from FHA products.
Hi Elizabeth! I have a wholesale lender that will do FHA purchase loans for borrowers after a Short Sale with no lates. After a short sale, most lenders are issuing 1099s to the customer for the amount of the lender's loss. The amount is counted as ordinary income on the customer's tax return and is fully taxable. Folks considering another purchase will need to anticipate this expense.
Thanks for letting us know about this. It's a great idea to remind people to get right on that credit report, even after a short sale, and start working it back up.
Hi Charita: There are 2 requirements for a short sale: hardship and under-water home. A seller can have a hardship or the strong possibility of a future hardship and still be able to scrape together the mortgage payments.
Hi Ed: Fortunately, the 2007 Mortgage Debt Relief Act exempts short sale sellers from paying tax on those 1099s if the home was their personal residence, so the 1099s do not apply on a federal level.
It is always nice to read a positive story about people after they short sell. Thanks for sharing.
Elizabeth,
This was a great bit of positive news, even though there are many questions that are raised by it.
Elizabeth: Thanks for this. This is good news!
Elizabeth- thanks for the good info. It definitely pays to check the credit score and take the extra time to make sure everything is done correctly.
Yes, most folks may qualify for the IRS exceptions and exclusions and not have to pay taxes on the 1099 amount. However, in typical IRS fashion, there are caveats (e.g. when the borrowers did a cash out refi and some/all the funds didn't go back into the house). I always advise clients considering or completing a short sale to contact a knowledgeable tax resource right away so they will know what to expect come tax time!
Elizabeth- thanks for the good info. It definitely pays to check the credit score and take the extra time to make sure everything is done correctly.
Isn't it true that some lenders are willing to take consider a short sale without the borrower being late while other lenders have written policies saying the borrower must be late?
Great to Elizabeth! You've always got so much cool info for us!
Tamara
Elizabeth, I don't see why a Short Sale seller who can't meet their obligation due to a valid hardship on one house can't sell and buy another more affordable house. They didn't create the real estate bust but were certainly victims of it, and dealt with the unfortunate circumstance the best they knew how. Your news is indeed great news, not only for your clients but for many Short Sale sellers out there looking for a light at the end of a dark tunnel.
Elizabeth. I had heard about this several months ago and fing it very exciting news. I have several sellers right now who have never missed a payment.
Now the ironic part is that if you are shorting a current FHA loan you MUST be delinquent on your payments at time of closing. Go figure.
Wow. I cannot believe this news! unfortunately I believe many probably ARE delinquent in their loans by the time we hit short sale process.
I'm sorry but it is not a given that seller's selling as short sales are late on making payments. There are many reasons why seller's have to sell. In this crazy market where home values have gone down so rapidly, some sellers just need to sell. It maybe job transfer, potential lose of income, probate just to mention a few.
Very interesting that they pursued this and got this kind of a raise in the score.
These are very interesting examples. I haven't heard of it happening here but we don't have many short sales in our area.
Elizabeth, this is the second time I've heard that Flagstar Bank is doing this! If the sellers are not behind on payments, this is great news for them! What an opportunity! I just hope there aren't too many people that just try to "work the system" on this type of situation.
Your giving out the secrets! Flagstar is tough to work with, but if the clients are patient and prepared for lots and lots of conditions it can get done! Great loophole to take advantage of!
Great information. I have had folks that sold via short sale over two years ago and I could not get them approved because they had "foreclosure started" on their report. They had one payment that was 30 days late.
Interesting information about Flagstar funding loans after a short sale!
I'd be interested to hear what needs to be in that hardship letter to allow a short sale without being delinguent. For example, would necessary but unaffordable repair expenses such as a roof, in an underwater home be a qualification?
I keep hearing from lenders shortsales are foreclosures. I have a client that was up to date on his payments and shortsaled his home last year. Can anyone help me qualify him. He has 10% down maybe 20%.
I need a lender. Help.
I am in california.
email me if you can help. ask4alarcon@yahoo.com
Thank you for the reminder. I have heard this before. It still depends on finding a lender. Is Flagstsar the only one?