Brandon Brittingham dicussing FHA and Wells Fargo Short Sales on power panel
    I recently was asked to speak on an expert panel in Las Vegas at the Cosmopolitan with Abel Fregoso National Vice President of Wells Fargo Short Sales. After the panel I had the pleasure to sit down with Abel for the second time and interview him about Short Sales specific to Wells Fargo. We talked about getting a correct short sale package together, what the Wells Fargo short sale process is when it comes to doing short sales, and what the Wells Fargo short sale process is for FHA loans. Below is an overview of that process: and see above a video on Wells Fargo short sale process.

    FHA Short Sales Process

    FHA short sales require a little more work and use different guidelines than regular short sales. I will walk you through from start to finish, as well as give you guidelines directly from HUD’s website for a point of reference. www.hud.gov
    One great thing about FHA short sales is that with almost every bank you can start the process prior to getting an offer. Once you have assembled the borrower’s package and the listing agreement, with almost every major lender you can start the process immediately after all docs are received. 
    Step one: Qualify, Organize the package, and send it in.

    As referenced above, make sure that your clients qualify based on HUD guidelines. Ultimately HUD makes the decision, but be familiar with the guidelines before starting. It will save you and your client time and possible denial into the program.
    The very moment you meet with a seller that has agreed they want to do a short sale, and you have verified it is a HUD backed property, get an authorization letter signed and send it in right away.
    Before you even list the property, organize with your sellers, so that when you do list the property you have a complete package. They should gather all financials and required documentation prior to even listing the property.
    Gather all HUD required listing addenda after you have been verified to speak on the account.
    PLEASE NOTE: If the borrower has moved out, HUD will require a separate letter explaining why the house was vacated and how long it has been vacated. It is a HUD requirement that the borrower is to maintain the property until settlement.
    Send in the complete package. Check it three times to make sure you are not missing anything.
    Once you send it in make sure that you check that they have received it, and that there is no documentation missing. MAKE THEM GO THROUGH THE PACKAGE WITH YOU, on the phone. I cannot stress this enough, don’t just ask them if they have received it, make them go through it and tell you everything that they have on file, and make sure they notate everything on the account as received.
    We all know about the paper eating dragon in all the short sale departments; by following this step you can alleviate running into the paper eating dragon!!
    STEP TWO: Appraisal and Approval to participate
    Once you have sent in all documentation, the servicer on the loan will order an appraisal. Just as mentioned before, make sure you take all proper steps in order to ensure a proper outcome. Make sure you also price the home accurately.
    HUD is going to do a full blown appraisal, and in most cases order a title search, to ensure clear title.  Getting the file to this point is crucial, and should be done no later than 2 weeks after all documentation has been received. Please note that is two weeks after they confirm all documentation has been received in their system, this is why it is necessary you verify all that all documentation has been received.
    Once the appraisal is back and title comes back clear the package is sent to a processor/negotiator, depending on which servicer is handling the loan.
    Once the processor/negotiator has the file they will review to make sure they have a complete package.  Make sure they have up-to-date pay stubs and bank statements.
    Once all documentation is verified and the appraisal has been received, an “Approval to Participate” Form will be issued (generally 4 weeks after all documentation has been received and verified).
    The approval to participate will spell out in detail the amount the appraisal came in at, and how much relocation money will be offered, if any, at the time of closing. This will also spell out how much money HUD has to net to accept an offer.
    Please note and reference HUD’s guidelines regarding value so you know what you can and cannot except in an offer.  If HUD’s appraisal comes in at $180,000 and their minimum net for the first 30 days of marketing is 88%, your offer has to NET HUD after all fees (including commission, etc..) $158,400 (88% of $180,000). This is why it is so important to make sure you value the property correctly and control the appraisal; as time goes on the scale slides to 86% then to 84%.
    If you have been in the file for over 4 weeks with no approval to participate (from the date all docs were received), you will have to escalate and may have to involve a supervisor.  It is your job to continue to push the file along to get to the proper channels in the right amount of time.  Do not let it sit.  Continue to call in to make sure all steps are being followed accordingly by the servicer.
    HUD does pay relocation money if the loan falls under certain criteria, but a general rule of thumb is that HUD will pay up to $1000 in relocation at the time of settlement if the property closes in a specific timeline.
    The terms of the relocation money will be spelled out in the “Approval to Participate Form”.
    Hopefully while you are in the set up phase you receive an offer so the turnaround time is not so bad.


    Once you get the offer to the property submit as you would any short sale and begin to negotiate the process. Unlike other short sales you know what offers the servicer and HUD will be willing to except.
    Your offer package will need to have all servicer and HUD required offer-related addenda. Get them from the very start to help save you time on this step.
    Make sure that no initials, signatures, pages, etc. are missing.  HUD will kick a short sale back for one missing initial!
    Make sure you submit the buyer’s pre-approval with the offer.
    PLEASE NOTE: In reference to closing costs the HUD guidelines allow up to 1% closing cost assistance to the buyer. If the buyer needs more than that, HUD will have to approve it which adds about another week onto the process. HUD will not approve closing costs over 3%; make sure buyer agents are aware of that.

    Send in an accurate HUD-1. Whatever HUD approves, they will not accept anything less. Make sure all fees are in line with what HUD allows in the guidelines, which will also be spelled out clearly in your ATP.
    Once you have an offer, depending on the servicer, you are looking at a 30 day review period for an approval if you meet HUD’s net requirement.  If you stay on top of it once you get to this point, since most of the work is already done, you should be able to get an approval in 30 days.
    This part, again, is contingent on you staying on top of the short sale and having communication on a frequent basis with the negotiator.  Without your constant contact and communication, this can severely delay the short sale process. 
    Once the negotiator has verified the offer is in line with the minimum net (make sure you calculate it on your end with all fees taken out, because sometimes they don’t), and they verify that the complete package with the most up-to- date information is there, they will send it to an interior audit department.  Then it is off to HUD for approval.
    In almost every short sale that involves HUD, if the servicer approves it to the point of being sent to the interior audit, HUD is going to approve it.  Once it is sent to the audit, it generally takes 5-7 days in audit, then another 5-7 days for HUD to approve it.
    These are all timelines that you will have to stay on top of and make sure the servicer follows, as well.
    If you follow all these steps correctly you will have a smooth transaction. Leaving one step out, or not following it through completely can seriously derail and delay the transaction.
    Once you have gone through the process, and are issued an approval, there is still some work to do.
    Most approvals are only good for 30 days. We all know in this economic climate it can take longer than 30 days for a buyer to get funding.
    Once you are getting towards the end process (when the package is sent to audit) the buyers should already be getting their loan going.
    Many buyers’ agents do not want to start the process until an actual approval letter is in hand, and that is completely understandable. Remember, they can get a loan preapproved just pending appraisal and inspections.
    With HUD short sales though, if the seller qualifies, and the net is going to be met, in all my experiences HUD is going to approve it. With HUD, as with all short sales, it just takes some time.
    That is why it is imperative that the buyer’s agent starts the process prior to you receiving an approval letter, around the time of audit or when it has been sent to HUD, unless they know for certain they can close in 30 days. This will give you about a two week head start prior to receiving the actual approval.
    Once an approval letter is issued, that settlement date is written in stone and it is very hard to push that approval date. The buyer’s agent needs to be well aware of this in advance so that there are no problems prior to closing.
    The information given in the approval letter, as far as fees and timelines, has to be followed EXACTLY.  Not following the guidelines spelled out in the approval letter can risk the transaction being denied by the servicer or HUD.  All guidelines must be followed to a “T”.
    Review the approval letter carefully, and I always suggest that you have an attorney explain the approval letter to the seller. It has to be the exact explanation of the terms. It is truly in your best interest to have an attorney advise the seller on how this will affect their credit, and how it will be treated as far as them being released from debt.
    It is never a good idea for you alone to explain an approval letter to a seller.
    If you have followed what I have laid out for you in the webinar, regardless of what kind of loan the seller has, you have already sent them to a CPA to handle the possible tax ramifications.

    If you have followed all steps correctly, you will close and get paid!!  The more FHA/HUD short sales that you do, the more versed you become, you will eventually adjust to the process.  Check out my other site at www.moorebrittingham.com

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