Until recently there has been confusion amongst the various government lending agencies as to what is allowed for the buyer to pay on behalf of the seller and when. As short sales have increased the need for clarification has grown. Government agencies have always had very strict guidelines about what a buyer is allowed to pay with most guidelines putting the extra costs unto the seller. Without equity in the property the strict guidelines have made it difficult for short sale escrows when the borrower is requested to pay seller fees. At one point earlier in the year the local HUD offices were saying it was allowed on FHA loans for the borrower to pay customary fees while HUD Washington said nothing was allowed. Finally, we have received clarity surrounding the policies from the government agencies and have been told the steps that need to be taken.
Effective as of June 24th, 2010 on FNMA, FHLMC, FHA and VA loans the following guidance has been released.
1) Allowable fees paid by the buyer include: short sale processing fees (also referred to as short sale negotiation fees, buyer discount fees, and short sale buyer fees), payment to a subordinate lien holder and payment of delinquent taxes or delinquent HOA fees.
2) The Servicer who is agreeing to the pre-foreclosure or short sale must be provided with written details of the fees or payments and has the option of renegotiating the payoff amount to release its lien.
3) The borrower (buyer) must be provided with written details of the additional fees or payments and the additional necessary funds to complete the transaction must be documented.
4) All parties (buyer, seller and servicer) must provide their written agreement/concurrence of the final details of the transaction that includes the additional fees or payments.
5) The HUD-1 Settlement Statement must include all fees and payments included in the transaction.
While the lenders will still have the right to disallow fees paid by the borrower on behalf of the seller, that are determined excessive, we now know all agencies recognize the need to facilitate the short sale transaction.