FHA Short Sale with BofA denied due to the severity of the Chinese Drywall in the home.

Just wanted to give my current story on what's going on and if anyone had any suggestions.  Currently trying to short sale our house which contains Chinese Drywall and this is the response from BofA:

The BPO came back with extensive damage regarding the Chinese drywall and deemed the property uninhabitable.  Because it is deemed uninhabitable FHA will not proceed with a short sale until all drywall is removed from the home as the liability is too high. Once the drywall situation has been taken care of BOA will reopen the file and order an updated value and proceed with the short sale.  Not the answer we were looking for I know but he reiterated that FHA will not proceed any further due to the liability and severity of the drywall situation.


I guess I am kind of confused here because how is the liability too high for FHA if the buyer has signed all kinds of disclosures indicating he understands the property has Chinese Drywall? Also, the buyer is paying for the hose in cash and intends to completely gut and renovate the house.

Suggestions/advise on how to proceed from here?

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So just wanted to update on the situation, we are still dealing with BofA trying to get a short sale.  The Short Sale has been approved by the bank and now we are just kind of waiting in limbo to see what is going to happen.  In the mean time we have been harassed by the HOA and have been sued by them on bogus violations and they have placed a lien on our property and they are trying to foreclose.  This house has been nothing short of a nightmare.

Help me out here.  In a short sale what the Servicer, Investor and Insurer are agreeing to is a short payoff.  They are agreeing to accept less than the total amount owed as payment of the debt.  How does that make them liable for the condition of the property?  They don't own the property. 

I would think there would be much more liability for the condition of the property if they foreclose, in which case they will OWN the property.

I have a sneaking suspicion this will end up being a bank "walk away" where they just never foreclose.  Then the poor SOB who owns the property will be left hanging out to dry with a property he can't live in and can't sell (because they won't approve the short sale) but will still technically be responsible for because his name is still in title.

Absolutely unconscionable on the part of BAC and FHA.

So just wanted to update on the situation, we are still dealing with BofA trying to get a short sale. The Short Sale has been approved by the bank and now we are just kind of waiting in limbo to see what is going to happen. In the mean time we have been harassed by the HOA and have been sued by them on bogus violations and they have placed a lien on our property and they are trying to foreclose. This house has been nothing short of a nightmare.

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