on FHA short sale (HELOC) waiting period

[BallBounces]

This question is more complex than it might appear.  

FHA requires short sales must be aged 3 years prior to a new FHA loan qualification.

How does FHA determine whether a particular "Paid / settled for less" LOC was part of a Home Short Sale?

[StartingOver10]

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@BallBounces wrote:

This question is more complex than it might appear.  

FHA requires short sales must be aged 3 years prior to a new FHA loan qualification.

How does FHA determine whether a particular "Paid / settled for less" LOC was part of a Home Short Sale?

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There are two documents that show that the LOC was paid - the letter accepting the short sale signed off by the bank (usually 2 or 3 pages with all the terms and conditions of the sale). And the corresponding HUD1 at the time of sale. 

[Anonymous]

"Settled for less" means short sale when talking about any kind of mortgage. Lenders also have many tools, such as the ability to access property profiles through title companies that show all liens for a given property.

[BallBounces]

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@Anonymous wrote:

"Settled for less" means short sale when talking about any kind of mortgage. Lenders also have many tools, such as the ability to access property profiles through title companies that show all liens for a given property.

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This is closer.

Assume for a moment it appeared as a revolving line of credit on ones credit report, rather than a mortgage..

[BallBounces]

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@StartingOver10 wrote:

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@BallBounces wrote:

This question is more complex than it might appear.  

FHA requires short sales must be aged 3 years prior to a new FHA loan qualification.

How does FHA determine whether a particular "Paid / settled for less" LOC was part of a Home Short Sale?

---

There are two documents that show that the LOC was paid - the letter accepting the short sale signed off by the bank (usually 2 or 3 pages with all the terms and conditions of the sale). And the corresponding HUD1 at the time of sale. 

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I understand where the short is recorded as such in the closing documents.

The question is, how would a new lender infer that a revolving line was part of a short sale if it were not listed as such on one's credit report?

(To be clear this is some what an academic excercise)

[Anonymous]

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@BallBounces wrote:

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@StartingOver10 wrote:

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@BallBounces wrote:

This question is more complex than it might appear.  

FHA requires short sales must be aged 3 years prior to a new FHA loan qualification.

How does FHA determine whether a particular "Paid / settled for less" LOC was part of a Home Short Sale?

---

There are two documents that show that the LOC was paid - the letter accepting the short sale signed off by the bank (usually 2 or 3 pages with all the terms and conditions of the sale). And the corresponding HUD1 at the time of sale. 

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I understand where the short is recorded as such in the closing documents.

The question is, how would a new lender infer that a revolving line was part of a short sale if it were not listed as such on one's credit report?

(To be clear this is some what an academic excercise)

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To be honest, a loan officer would have no way of catching it up front if the borrower did not disclose it (which would be loan fraud). It would get caught by a LexisNexis type database once the file went to underwriting.

[StartingOver10]

Having been on both sides of many short sales (as a Realtor), this is what I see from my POV at the time of sale and 3 years later at the time of purchase when the seller is now a buyer and they need a mortgage.  So consider this format from my practical experience of both selling SS's and selling a new home to the borrowers 3+years later. 

For the property that is sold short:

• All lien holders have to agree to the short sale - if even one says "no", then there is no deal.  This happens more frequently than you can imagine.
• Subordinate lien holders have a limited amount of recovery unless the first is very small (and then the first usually just prefers to f/c rather than approve a short sale IME)
• Once the deal is negotiated, it is then signed off by the borrowers and the lien holders and every aspect of the pay off is itemized in the short sale approval letter
• Then the sale closes and the HUD1 has to match the short sale approval letter.
• Credit reporting is a bit of a wild card - especially with subordinate lien holders in states where they can collect deficiencies.  The short sale approval letter is supposed to prevent the subordinate lien holders from going after the rest of the balance, but not all lien holders follow the rules. The borrower has to be pro-active in making sure the CR reads correctly after the SS is completed.

For the new purchase:

• I have seen the underwriter request both those documents that I mentioned because they are looking to see what was paid and looking for the HUD1 to make sure it correlates with the SS approval letter.
• Naturally the lender does their own due diligence in the background just like deepzy said.

[BallBounces]

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@Anonymous wrote:

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@BallBounces wrote:

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@StartingOver10 wrote:

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@BallBounces wrote:

This question is more complex than it might appear.  

FHA requires short sales must be aged 3 years prior to a new FHA loan qualification.

How does FHA determine whether a particular "Paid / settled for less" LOC was part of a Home Short Sale?

---

There are two documents that show that the LOC was paid - the letter accepting the short sale signed off by the bank (usually 2 or 3 pages with all the terms and conditions of the sale). And the corresponding HUD1 at the time of sale. 

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I understand where the short is recorded as such in the closing documents.

The question is, how would a new lender infer that a revolving line was part of a short sale if it were not listed as such on one's credit report?

(To be clear this is some what an academic excercise)

---

To be honest, a loan officer would have no way of catching it up front if the borrower did not disclose it (which would be loan fraud). It would get caught by a LexisNexis type database once the file went to underwriting.

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Bolded mine.  On the typical application, does it ask for borrowers to list BKs, Foreclosures, AND short sales? 

[StartingOver10]

Big Bold YES.  See  page 3 of the mortgage application (google 1003)

https://www.fanniemae.com/content/practice_case/do-du-case-6-1003.pdf

[BallBounces]

I am looking at the disclosures section of a 1003. It lists BKs and Forclosures.  It does not list short sales.  Am I looking at an old document?

a. Are there any outstanding judgments against you?
b. Have you been declared bankrupt within the past 7 years?
c. Have you had property foreclosed upon or given title
or deed in lieu thereof in the last 7 years?
d. Are you a party to a lawsuit?
e. Have you directly or indirectly been obligated on any
loan which resulted in foreclosure, transfer of title
in lieu of foreclosure, or judgment?

(This would include such loans as home mortgage loans, SBA loans, home improvement loans, educational loans, manufactured (mobile) home loans, any mortgage, financial obligation, bond, or loan guarantee. If “Yes,” provide details, including date, name, and address of Lender, FHA or VA case number, if any, and reasons for the action.)