In the last several months we have seen a pattern emerge; first with our Freddie Mac files and now, predictably, with our Fannie Mae short sale files.
As you know the requirement for most short sales is that the Seller must be at least 31 days late on the loan payments prior to being able to submit a short sale package. (A VA loan is one of the few exceptions to this rule.) Some Sellers like to try to make as many payments as possible so that they are just 31 days late when the short sale package is first submitted to the bank/servicer. The Sellers do this for three reasons: 1) They simply want to do the right thing; 2) They want their credit score to take as small a hit as possible; and 3) They want to keep a foreclosure from being filed.
In the past, with the Fannie Mae and Freddie Mac loans we almost always got the deficiencies waived in a short sale with no cash contribution from the Seller. Now we are seeing a trend for short sales submitted less than 90 days late. Fannie Mae and Freddie have started to request a promissory note for repayment of the full deficiency balance or a smaller cash contribution from the Seller. The Seller in turn has an opportunity to counter the bank/servicer’s request with a written explanation as to why they can’t pay the requested amount and must inform the bank/servicer the amount that the Seller can offer. At that point the Seller’s offered amount is agreed to by the bank/servicer or the short sale file is closed. There is not much (or often any) back and forth negotiations on that issue.
The reason that this is happening is that if the Seller is only 31 days late instead of 60 – 90 days late, it is presumed to be a “strategic” short sale and not a “hardship” short sale driven by necessity. With that presumption comes extra scrutiny of the Seller’s financial Statement (UBA), hardship letter and tax returns.
We now discuss this trend with the client up front so that they can incorporate this information in their approach to the short sale.