PREFORECLOSURE SALES PROGRAM

The Preforeclosure Sale Program allows a Mortgagor in default to sell his or her home and use

the sales proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount

owed. Ref: Mortgagee Letters 2003-19 and 2008-43.

FACTS
  • Outright sale of mortgaged property to a third party and must be an "arms length"

transaction.
  • Outstanding indebtedness includes; unpaid principal balance + delinquent interest +

Partial Claim (if applicable).
  •  HUD will pay up to $1,000 incentive to the Mortgagor if closed within 3 months from the

date of application; thereafter, the incentive is reduced to $750.
  • HUD will pay an additional amount up to $1,500 for the discharge of junior liens after

the Mortgagor´s incentive has been applied.
  •  HUD allows all reasonable cost of the sale including up to 6% sales commission,

local/state transfer tax stamp and other customary closing cost.
  • HUD allows up to 1% of the buyer´s mortgage amount for closing costs to be included in

the "Seller´s Costs" on the HUD-1 for all transactions that involve a new FHA-insured

mortgage.
  •  Tiered Net Sales Proceeds requirement is applicable as follows:

o For the first 30 days of marketing, Mortgagees may only approve offers that will

result in minimum net sale proceeds of 88% of the "As-Is" appraised Fair Market

Value.

o During the next 30 days of marketing, Mortgagees may only approve offers that

will result in minimum net sale proceeds of 86% of the "As-Is" appraised Fair

Market Value.

o For the duration of the Preforeclosure Sale marketing period, Mortgagees may

only approve offers that will result in minimum net sale proceeds of 84% of the

"As-Is" appraised Fair Market Value.
  • Unacceptable Settlement Costs:

o Repair reimbursements or allowances;

o Home Warranty Fees;

o Discount points or loan fees for non FHA-financing; and

o Lender´s title Insurance fee.

  • Property Condition:

o Properties that have sustained damage may be eligible for the PFS option.

o If the cause of the damage is fire, flood, earthquake, tornado, boiler explosion (for

condominium´s only) or mortgagee neglect (i.e., surchargeable damages as defined

in 24 CFR Part § 203.378) mortgagees must obtain prior approval from the NSC at

the address above.

o Prior to seeking this approval, the mortgagee must obtain the government´s estimate

Revised ? February 4, 2009

of the cost to repair the surchargeable damage by contacting the HUD Management

and Marketing (M&M) Contractor with jurisdiction for the geographic area where

the property is located.

o A list of M&M Contractors can be found on the Internet at:

http://www.hud.gov/offices/hsg/sfh/reo/mm/mminfo.cfm.

  •  Under no circumstance should the Mortgagor be encouraged to default on their

mortgage for the purpose of participating in the Preforeclosure Sale Program.

ELIGIBILITY
  •  The property must be owner-occupied, no "walk-a ways" or investment properties.

Exceptions: when it is verifiable that the need to vacate was related to the cause of default

(job loss, transfer, divorce, death), and the subject property was not purchased as rental

investment, or used as a rental for more than 18months.
  •  The Mortgagor must be 31 days or more delinquent at the time of the Preforeclosure Sale

closing.
  • The Mortgagor must provide documentation substantiating a reduction in income or an

increase in living expense, and documentation that verifies the Mortgagors need to vacate

the property (if applicable).

PROCEDURES

(1) Mortgagors who express an interest in the Preforeclosure Sale Option or who have been

identified by the Mortgagee as a qualified candidate for the Preforeclosure Sale Program must be

mailed a copy of the revised Information/Disclosure Form HUD-90035.

(2) The Mortgagee must obtain a standard "As Is" FHA appraisal which has been completed in

accordance with the requirements of HUD Handbook 4150.2 (Valuation Analysis for Single Family

One-to Four-Unit Dwellings). To this end, Mortgagees must:
  •  Obtain a standard electronically-formatted appraisal from an appraiser on FHA´s

Appraiser Roster. The selected appraiser must not share any business interest with

the Mortgagor or the Mortgagor´s agent. Appraisals obtained by the buyer, seller,

real estate agent, or other interested parties may not be used to establish the Fair

Market Value of the property for the Preforeclosure Sale Program. It is also

important to note that:
  •  The appraisal must contain an "As-Is" Fair Market Value for the subject property;
  • The appraisal will be valid for six (6) months; and
  • Distress sales may not be used by the appraiser to establish comparable valuesunless they represent the only comparables within reasonable proximity of the subject property.
  •  Provide a copy of the appraisal to the homeowner, sales agent, or HUD, upon request.
  •  Mortgagees are reminded that in accordance with HUD regulations at 24 CFR Part §

203.365 (c) they are responsible for the accuracy of all documentation used in the

PFS decision, including accurate and complete appraisal information.

In an effort to ensure that the most current Fair Market Value is used for the Preforeclosure Sale,

a Mortgagee may obtain a new FHA appraisal, even if the property was appraised by an FHA

Roster Appraiser within the preceding six (6) months.

Revised ? February 4, 2009

To be reimbursed through HUD´s claim filing process, the cost of the appraisal must be

reasonable and customary for the market area where the appraisal is performed. The appraisal

must be retained in the claim/servicing file, even if the Preforeclosure Sale is not approved or

completed.

(3) The Mortgagee must obtain a title search or preliminary report verifying that the title is not

impaired with un-resolvable title problems or with junior liens that cannot be discharged as

permitted by HUD.

(4) When an application is accepted an Approval to Participate form is used. The date of this

form becomes the starting date of the PFS participation. The Approval to Participate form must

include the date by which a signed contract for sale must be obtained and minimum acceptable

net sales price.
  •   The Mortgagor agrees to show good faith in attempting to market and sell the property.
  •   The Mortgagor must perform all normal property maintenance and repairs until closing of the Preforeclosure Sale.
  •   The Mortgagor must list the property with a licensed real estate broker, unrelated to the

Mortgagor. The listing agreement must include a specific cancellation clause in the event

the terms of the sale are not acceptable to HUD.

(5) The Mortgagee delays foreclosure to allow pursuit of the Preforeclosure Sale.

(6) The Preforeclosure Sale period shall be four (4) months beginning upon Mortgagee approval

(automatically extended two months for Mortgagees in Tier 1; or there is a signed Contract of

Sale, but settlement can not occurred by the end of the fourth month).

(7) The Mortgagee should review marketing efforts with the Mortgagor and/or the Real Estate

Broker/Agent on a monthly basis.

(8) The sale closing must occur within six months (6), eight (8) months if Mortgagee is in Tier 1,

from the date the Mortgagee notified the Mortgagor in writing of approval to participate in the

Preforeclosure Sale Program.

If you have any question you may contact NSC at:

National Servicing Center

www.hud.gov/offices/hsg/sfh/nsc/nschome.cfm

E-mail: hsg-lossmit@hud.gov

1-888-297-8685

Frequently Asked Questions:

http://www.hud.gov/offices/hsg/sfh/nsc/faqnsctc.cfm

PFS Forms: http://www.hud.gov/offices/hsg/sfh/nsc/lmmltrs.cfm