There is a Lender Making Loans to Buyers a Few Months After Selling on a Short Sale

By
Real Estate Agent with Lyon Real Estate BRE #00697006

buying home after short saleI received an email yesterday from one of my short sale sellers who had closed an Elk Grove short sale on October 30th and bought a new home on December 30th, 2009. This was before FHA issued its new guidelines. The new FHA guidelines this year say FHA will approve a loan for a seller who sold on a short sale, providing the seller was not delinquent on the mortgage. I've been looking for a lender who will do this because none of my sources is funding such loans.

The client was excited to share the news, and added that he bought the home without an agent, using the help of a "sales associate." While I am not thrilled that the client was hoodwinked into believing he did not need to hire his own buyer's broker and therefore did not call me, I am super jazzed that he bought the home. His email made me realize that I need to be more diligent in letting my clients know that I can represent them if they want to buy a new home from a builder.

The last new home construction that I negotiated was a model home. Buying a model home from a builder is a bit complicated because those homes involve upgrades already in place. But builders in Sacramento are hurting financially and are willing to wheel and deal at the moment. Not only did this particular single woman home buyer get her model home at a terrific price, she also received all of the furniture for free. It pays to hire an agent, and it doesn't cost a buyer one thin dime.

The thing that struck a chord with me in my client's email was the fact a bank made him a loan 3 months after his short sale. This is what happened: Even though he was current on his payments to Wells Fargo, the bank made a notation on this client's credit report that the second loan was charged off. We tried to get that verbiage removed from the short sale approval letter, but Wells Fargo refused. After the short sale closed, Wells Fargo reported the loan as a charge off with a balance owing. The client called Wells Fargo and insisted that the loan should be reported with a zero balance because the debt was forgiven. So, Wells Fargo changed the reporting status to: Paid in Full for Less Than Agreed with a zero balance. After that adjustment, the client's FICO score jumped from 651 to 740.

This is why it's a good idea for sellers who do short sales to check their credit reports after closing. Another not-so-lucky client had Bank of America file a foreclosure against her after the loan was paid off as a short sale. And she was current on her mortgage payments when it closed. That was a real mess to untangle.

However, if you are thinking about buying a home after a short sale, and if your payments are current, you might want to contact Flagstar Bank and ask about an FHA loan. Flagstar is funding loans for buyers after selling as a short sale. The minimum FICO score required by Flagstar is 650.

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Certified HAFA Specialistelizabeth weintraub

 

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Elizabeth Weintraub is an author, home buying expert for About.com, a Land Park resident, and a veteran real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento, as well as tract homes in Elk Grove, Natomas, Roseville and Lincoln. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area with an emphasis on Elk Grove. Call Elizabeth Weintraub at 916.233.6759. Put 40 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. BRE License # 00697006.

The Short Sale Savior, by Elizabeth Weintraub, available with free shipping.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate. Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice; it could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.

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Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. Tim Krueger 03/15/2010 12:43 AM
  2. Joe and Molly Murphy 03/15/2010 01:04 AM
  3. Lenn Harley 03/15/2010 06:57 AM
  4. Ralph Gorgoglione 03/15/2010 07:12 AM
  5. Donald Bradbury 03/15/2010 09:16 AM
  6. Jorge DeLeon 03/15/2010 01:00 PM
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buying home after short sale
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Show All Comments
Rainmaker
648,019
William James Walton Sr.
WEICHERT, REALTORS® - Briotti Group - Waterbury, CT
Greater Waterbury Real Estate

Elizabeth,

This was a great bit of positive news, even though there are many questions that are raised by it.

Mar 15, 2010 01:03 PM #52
Ambassador
450,608
Paul McFadden
Environment Control - Kent, WA
Janitorial. Kent, WA.

Elizabeth: Thanks for this. This is good news!

Mar 15, 2010 01:28 PM #53
Rainmaker
244,238
Kristi DeFazio
RE/MAX Advantage - Colorado Springs, CO
Colorado Springs Rea lEstate 719-459-5468

Elizabeth- thanks for the good info. It definitely pays to check the credit score and take the extra time to make sure everything is done correctly.

Mar 15, 2010 01:32 PM #54
Rainmaker
198,309
Ed Gillespie
Rocklin, CA

Yes, most folks may qualify for the IRS exceptions and exclusions and not have to pay taxes on the 1099 amount.  However, in typical IRS fashion, there are caveats (e.g. when the borrowers did a cash out refi and some/all the funds didn't go back into the house).  I always advise clients considering or completing a short sale to contact a knowledgeable tax resource right away so they will know what to expect come tax time!

Mar 15, 2010 01:33 PM #55
Rainmaker
244,238
Kristi DeFazio
RE/MAX Advantage - Colorado Springs, CO
Colorado Springs Rea lEstate 719-459-5468

Elizabeth- thanks for the good info. It definitely pays to check the credit score and take the extra time to make sure everything is done correctly.

Mar 15, 2010 01:33 PM #56
Rainmaker
589,575
Jim Hale
ACTIONAGENTS.NET - Eugene, OR
On the Move for You! - Eugene - Springfield Oregon Real Estate

Isn't it true that some lenders are willing to take consider a short sale without the borrower being late while other lenders have written policies saying the borrower must be late?

Mar 15, 2010 02:31 PM #58
Rainmaker
86,736
Tamara Dorris
Davis & Davis - Carmichael, CA

Great to Elizabeth! You've always got so much cool info for us!


Tamara

Mar 15, 2010 05:31 PM #59
Anonymous
Anonymous
Anonymous

Elizabeth,  I don't see why a Short Sale seller who can't meet their obligation due to a valid hardship on one house can't sell and buy another more affordable house. They didn't create the real estate bust but were certainly victims of it, and dealt with the unfortunate circumstance the best they knew how. Your news is indeed great news, not only for your clients but for many Short Sale sellers out there looking for a light at the end of a dark tunnel.

Mar 15, 2010 06:10 PM #60
Rainmaker
1,087,554
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

Elizabeth. I had heard about this several months ago and fing it very exciting news. I have several sellers right now who have never missed a payment.

Now the ironic part is that if you are shorting a current FHA loan you MUST be delinquent on your payments at time of closing.  Go figure.

Mar 15, 2010 06:19 PM #61
Ambassador
1,238,010
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

Wow. I cannot believe this news! unfortunately I believe many probably ARE delinquent in their loans by the time we hit short sale process.

Mar 15, 2010 06:28 PM #62
Rainer
64,761
Marguerite Wherry
Associate Broker / Teles Properties, Inc. - Malibu, CA

I'm sorry but it is not a given that seller's selling as short sales are late on making payments. There are many reasons why seller's have to sell. In this crazy market where home values have gone down so rapidly, some sellers just need to sell. It maybe job transfer, potential lose of income, probate just to mention a few.

Mar 15, 2010 06:30 PM #63
Rainmaker
1,159,908
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566

Very interesting that they pursued this and got this kind of a raise in the score.

Mar 15, 2010 08:22 PM #64
Rainmaker
719,078
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
CRS, GRI, e-PRO, Searcy AR

These are very interesting examples.  I haven't heard of it happening here but we don't have many short sales in our area.

Mar 15, 2010 10:21 PM #65
Rainmaker
341,953
Don Wixom
RE/MAX Advantage Nampa, ID - Nampa, ID
"Looking out for your next move..."tm

Elizabeth, this is the second time I've heard that Flagstar Bank is doing this!  If the sellers are not behind on payments, this is great news for them! What an opportunity!  I just hope there aren't too many people that just try to "work the system" on this type of situation.

Mar 15, 2010 10:31 PM #66
Rainmaker
206,843
Erin Newington and Terri Moule
(916) 548-9198 Real Estate Masters - Elk Grove, CA
Elk Grove Realtors (916) 585-3858

Your giving out the secrets! Flagstar is tough to work with, but if the clients are patient and prepared for lots and lots of conditions it can get done! Great loophole to take advantage of!

Mar 16, 2010 04:09 AM #68
Rainmaker
58,714
Justin Messer
Supreme Lending- USDA, FHA, and Conventional Loans - Peachtree City, GA
Residential Loan Officer, USDA Rural Housing Loan

Great information.  I have had folks that sold via short sale over two years ago and I could not get them approved because they had "foreclosure started" on their report.  They had one payment that was 30 days late.

Mar 16, 2010 02:03 PM #69
Rainmaker
909,945
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Interesting information about Flagstar funding loans after a short sale!

Mar 20, 2010 05:17 PM #70
Rainer
187,304
Thomas McCombs
Century 21 HomeStar - Akron, OH

I'd be interested to hear what needs to be in that hardship letter to allow a short sale without being delinguent. For example, would necessary but unaffordable repair expenses such as a roof, in an underwater home be a qualification?

Mar 22, 2010 09:51 AM #71
Anonymous
Anonymous
Anonymous

I keep hearing from lenders shortsales are foreclosures. I have a client that was up to date on his payments and shortsaled his home last year. Can anyone help me qualify him. He has 10% down maybe 20%.

 

I need a lender. Help.

I am in california.

email me if you can help. ask4alarcon@yahoo.com

 

May 20, 2010 04:28 PM #72
Rainmaker
304,568
Margaret C. Taylor
Century 21 New Millennium MD - Mechanicsville, MD
St Marys/Calvert/Charles MD Real Estate Agent

Thank you for the reminder.  I have heard this before.  It still depends on finding a lender.  Is Flagstsar the only one?

Jun 01, 2010 04:02 PM #73
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Rainmaker
1,212,101

Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents

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