|Subject:||“Deed-in-Lieu of Foreclosure and Preforeclosure Sale”|
|Source:||John Price. Loan Officer, Prospect Mortgage|
Deed-in-Lieu of Foreclosure and Preforeclosure Sale
These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. A preforeclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.
The following waiting period requirements apply:
|Waiting Period||Additional Requirements|
|Two years||80% maximum LTV ratios1|
|Four years||90% maximum LTV ratios1|
|Seven years||LTV ratios per the Eligibility Matrix|
Here is the FHA guideline.
4155.1 4.C.2.l Short Sales
A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his/her principal residence simply to
- take advantage of declining market conditions, and
- purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value.
Borrower Current at the time of Short Sale
A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all
- mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and
- installment debt payments for the same time period were also made within the month due.
Borrower in Default at the time of Short Sale
A borrower in default on his/her mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.