Should I Try to Short Sale an FHA, VA, or a Loan with PMI Insurance

You bet! FHA short sales work the same. The only difference is that the loan is HUD insured. The insurance will pay the bank 82% of the property’s as-is, current appraised value as long as it is not less than 63% of the loan amount. If that number works for you, then you have a deal.

VA short sales work exactly the same as an FHA short sale with one exception. VA guarantees the loan for 91% of as-is, current appraisal. You will meet a VA appraiser (hired by the bank) at the property, and you will be able to purchase the property for 91% of the appraised amount.

The figures above are subject to change with FHA and VA regulations. Research your area as to FHA insurance and VA guarantee benefits.

• Several years ago FHA would not short sale. Soon they began accepting 91% of the appraisal. Next they were accepting 88%. Then it lowered yet again to 82% of the appraisal.
  

• VA was like FHA in the fact they would not short sale either. Now they accept 91%. We have a student who recently got VA to accept 82.13% of the appraisal. Once VA begins accepting discounts in one state, it soon becomes nationwide. Keep your eyes and ears open and we may soon see VA following in the footsteps of FHA.
  

Note: Please note that if FHA borrowers do not make their first mortgage payment “a first-payment default” kicks in and the loan loses its FHA insurance. This is great to know because in many cases you can short sale to an amount below the 82% mark.

When you are attempting to short sale an FHA, the bank will send an FHA approved appraiser. Your best shot at a successful short sale is to meet the appraiser at the property.

• Tell the appraiser that you are the contact person and have the only key.
  

Walk through the property with the appraiser and point out every nasty detail: roof leaks, bad plumbing, outdated kitchens, outdated baths, bad wood, mold, or whatever you can find. The more items you can point out, the better your chances of a low appraisal.

The appraiser knows before leaving the house that if the appraisal is too high, the poor homeowner is out of luck and out on the street. Do whatever you need to do, within the limits of the law, to get the numbers low!

When banks foreclose on FHA loans, they get the Certificate of Title at the foreclosure sale. They receive their insurance money and then deed the property to HUD, who then disposes of the property via the HUD homes list.

Likewise, when banks foreclose and take possession of a home that is VA guaranteed, they turn the property over to the VA, who has guaranteed a portion of that loan. VA pays the bank’s guarantee and then disposes of the property via the VA foreclosure list.

• The reason a short sale is more difficult when FHA or VA is involved is simple: The bank will obtain an appraisal on the property, and depending on the insurance or guarantee that FHA or VA issued, they will receive that amount of money.
  

The banks are basically protected against major loss in the event of a foreclosure.

When one of these properties is in bad condition, there is a better chance for a short sale because the appraisal will come in low. When you attempt to short sale FHA or VA loans and get a no, consider taking over the property and reinstating the mortgage.

• You can then offer “owner financing” or keep the property as a lease option.
  

There are many other great strategies to use instead of a short sale when FHA or VA loaned homes are in good shape.

• A benefit of doing an FHA short sale, is that FHA will pay the homeowners $1,000 to move as well as waive the deficiency judgment.

Closing a Short Sale Transaction

The bank will give you a deadline in which it must receive the short sale payoff. Arrange the closing to take place prior to the stated date. Always use your title company or attorney whenever possible.

• It’s a bad idea to wait until your last day to close in case something happens and you need a few more days.

Should you need a few extra days, have the title company/attorney call the bank and ask for the extension. Typically, if the title company/attorney asks for it, it won’t cost you anything. If you ask for it, you’ll have to pay the daily per diem, which could run into the thousands.

• When the bank agrees to accept your offer, ask what their “per diem” rate is just in case you can’t close on time.
  

Be sure all the necessary people are present at the closing and that the money is there. Once the property is closed, you can rehab and retail it, keep it for long-term rental, or do what we do … wholesale it quickly.

• You can make most of your money by combining two techniques: Short sale the deal and then wholesale it to a rehabber.

Please note that if you want to wholesale your short sale property at closing, you must coordinate a “double or simultaneous closing” with your closing agent and buyer.

This is perfectly legal and requires no cash or loan from you.

In a nutshell, the rehabber comes to the closing with cash, you buy the property from the homeowner and immediately sell it to the rehabber. The rehabbers funds pay for both transactions. When interviewing title companies or attorneys ask them if they do double closings. If they say no, they are not investor friendly so keep looking.

One of the easiest ways to find an investor friendly title company/attorney is to attend your local REIA group. These type of people are members and are actively seeking your business.