July 14, 2014
The FHA and HUD have issued a Mortgagee Letter updating the requirements for Deed-In-Lieu and Pre-Foreclosure sales for borrowers at risk of going into default on FHA home loans. Mortgagee Letter 2014-15, Updated Requirements for Pre-Foreclosure Sales (PFS) and Deeds in Lieu (DIL) of Foreclosure, completely updates and supersedes the previous FHA mortgagee letter in these areas.
The new regulations could in some cases be implemented right away if participating lenders choose to do so, but FHA/HUD requirements state these rules will be in effect for all lenders as of October 1, 2014.
The new guidelines include alterations or modifications of existing policy including the following as listed in the mortgagee letter:
–Requirements for real estate agents and brokers participating in PFS transactions;
–An initial listing period requirement for PFS transactions;
–Updated sample language for the PFS Addendum;
–Documentation requirements for verifying assets, income, and expenses;
–Use of the Deficit Income Test (DIT);
–The elimination of the financial hardship/deficit income PFS requirement for a servicemember who has received Permanent Change of Station (PCS) Orders;
–Validation requirements for appraisals;
–The criteria under which the Department will permit non-arms-length PFS transactions;
–The minimum marketing period for all PFS transactions.
One of the most important sections of this mortgagee letter addresses when a borrower may be eligible for a deed-in-lieu or a pre-foreclosure sale. The mortgagee letter states:
“If none of FHA’s loss mitigation home retention options are available or appropriate, the mortgagee must evaluate the borrower for a non-home retention option. The priority order of FHA’s Loss Mitigation non-home retention options requires that a mortgagor in default or at imminent risk of default be evaluated for a PFS transaction before being evaluated for a DIL transaction. Therefore, the mortgagee must first determine a mortgagor’s eligibility for a PFS.”
In other words, there is a priority order–pre-foreclosure sales would be the first option in a “non-home retention” situation, with deed-in-lieu of foreclosure being the second option.
We will cover this mortgagee letter and its changes to deed-in-lieu and pre-foreclosure sales in detail later this week.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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