HUD released its ruling on when/how soon a borrower may use FHA financing after a short sale.

Here is how it is going to work.

1. A buyer can immediately purchase a home if they executed a short sale on a previously owned residence if:

• a. 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
• b. 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:

• a. They did a short sale simply to take advantage of declining market conditions AND
• b. 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
• c. They were in default at the time of the short sale

The exact methods being used to determine 2a. were not discussed in the mortgagee letter however I expect that we 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 reason 2c if:

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

Jeremy House, CMPS, CDPE