Has anyone ever ran into this problem doing a short sale?

Short Sale Denied because:

After its review of an FHA Roster appraisal, a mortgagee must submit a Request for a Variance through the Extensions and Variances Automated Requests System (EVARS) to approve a PFS transaction if one of the following conditions exists:  The current appraised value of the property is less than the Unpaid Principal Balance (UPB) by an amount of $75,000 or greater; or  The appraised value is less than 50 percent of the UPB.  

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Escalate to HUD, but many times HUD will deny short sales if they feel they can reduce their claim amount by the home going to foreclosure.

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It is technically not a denial...FHA guidelines say that if the appraised value is too low ($75K less OF 50% less than the current balance due on the mortgage) than the short sale lender has to submit for a variance.  Just go back to the negotiator at the bank and ask them to submit the request for variance to get the appraised value approved by FHA.  Once that happens then you should have an approved price that they will accept.

If FHA won't approve the variance then Brett is correct, FHA may feel that they can increase the value of the property by foreclosing and doing some basic repairs before putting back on the market as a HUD foreclosure.  

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