Hey Superstars....I'm trying to figure out the best way to handle this new wrench that Midland is throwing in this short sale. Appraisal was completed on the property (I'm awaiting that report now). According to the appraisal, the AC doesn't work, and there are minor cosmetic repairs such as flooring and interior paint (neither of which are bad, b/c I've seen the inside of the condo myself!). Midland wants to speak to the homeowner about these issues to determine if the property is in "marketable condition". We all know that short sales are sold as-is, but I'm afraid Midland will want the homeowner to file a claim or something to fix these issues. (homeowner insurance has been cancelled) What do you think the best way is to go about handling their questions? The home IS in marketable condition, but the homeowner does not have the money to fix the AC in order to move forward with the short sale. Thoughts? Ideas? Thank you in advance for taking the time to read this!
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This is what HUD say's about the Condition of the property is regards to the Pre-Foreclosure Sale option -
F. Property Condition
Properties that have sustained damage may be eligible for the PFS option. 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. Prior to seeking
this approval, the mortgagee must obtain the government’s estimate 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. A list of M&M
Contractors can be found on the Internet at: http://www.hud.gov/offices/hsg/sfh/reo/mm/
Page 8 of 18
Pre-Foreclosure Sale Procedures
mmingo.cfm.
Upon receipt of the government’s repair estimate, the mortgagee must submit a Form HUD-
90041 (Request for Variance) to the NSC to obtain the approval needed to enter into a PFS
Agreement with the mortgagor.
In accordance with 24 CFR Part § 203.379 mortgagees are responsible for the cost of
surchargeable property damage. If the property is being sold “As Is” subject to the damage, the
mortgagee will be required to deduct the government’s estimate of the cost of the damage from
its PFS claim (See Appendix A - Claim Filing Instructions for Item 109).
If the property is being sold “As Repaired” and funds for surchargeable repairs will be
escrowed or provided as a credit to the borrower at closing, the amount of the repair escrow or
repair credit is not an allowable settlement cost as defined in Section J of this ML and may not
be included in the net sales proceeds calculation.
If the damage is not surchargeable it is not necessary to obtain approval from NSC prior
to approving the PFS Agreement. Regardless of the cause of the damage, the mortgagee must
work with the mortgagor to file a hazard insurance claim and either use the proceeds to repair
the property or adjust the claim by the amount of the insurance settlement (non-surchargeable
damage) or the government’s repair cost estimate.
Mortgagors are required to disclose any property damage to the mortgagee during the
application or after the PFS approval. In the event a property sustains significant damage after
a mortgagor has received approval to participate in the PFS program, the mortgagee must re-
evaluate the property to determine if it continues to qualify for the PFS Program and terminate
participation if the extent of the damage changes the property’s FMV. .
Removal of Repair Limitations –With prior approval from HUD, properties with surchargeable damage (i.e., damage caused by fire, flood, earthquake, hurricane, boiler explosion or mortgagee neglect) may be eligible for the PFS program if funds - sufficient to cover the government’s estimated repair costs - are applied to reduce the outstanding debt when a claim is filed.
It's one of those thing that "Is what it is". The seller should just answer the questions truthfully then if there is a problem figure out how to solve it. ALL properties are in "marketable condition". They just may not be in "financing condition".
Hasn't Midland placed a forced insurance policy on the propetty?
Thank you Bryant. I asked the rep @ Midland if there was a forced placed policy and they didn't know. I'm just concerned b/c the last Midland I did, they were ready to close the file and move to foreclosure over a very small thing in the appraisal, which required the homeowner to make a claim over damages...that had already been fixed. It was crazy and frustrating, which is what all my Midland files seem to be these days! Ughhh! I do plan on having the homeowner answer honestly, I just wanted a little feedback from others. Thanks again!