Foreclosures & Short Sales

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 PeriodDescription: Additional RequirementsDescription:
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.