New Rules in FHA Short Sales

Filed under: Market Comentary

short salesIn a recent story from Inman News, there are new rules that took effect on October 1, 2013 that will now prohibit brokers and agents from representing both buyers and sellers in Federal Housing Administration (FHA) short sales.

In July, the Department of Housing and Urban Development issued a letter to mortgage servicers which outlined a variety of new “anti-fraud” requirements for “short sales” and “deeds -in-lieu of foreclosure.” One of the requirements includes the use of a “deficit income test” which will prove that a homeowner experiencing a hardship may qualify for a short sale or deed-in-lieu of foreclosure. In addition, the homeowner must meet documentation requirements for verifying their assets, income, and expenses.

And, according to HUD, “To ensure that short-sale transactions are conducted at ‘arms length,’ brokers and their agents may only represent the buyer or the seller, not both parties.”

The National Association of Realtors (NAR), in a letter to Carol Galante, the Federal Housing Commissioner, said, “HUD will no longer allow ‘dual agency’ agreements in short-sale transactions.”

According to NAR, it has been told that the policy was put into effect because HUD’s inspector general “detected fraud and abuse in the pre-foreclosure sales process” and noted that short sales aren’t meeting “minimum net sales proceeds requirements.”

NAR said that these new restrictions on real estate brokers and agents are only going to make this problem worse. They explained that some brokerages could decide to completely stop representing sellers in FHA short sales because they will not want to restrict their agents from representing buyer of those properties.

In describing the problem, NAR said, “Some real estate brokers have hundreds of agents across multiple offices. If one of those offices chooses to list a short sale, under HUD’s new policy, none of the other agents can bring a buyer to that property.”

In addition, according to Inman News, NAR member brokers are worried that they would have to provide a disclaimer when listing a short sale in the multiple listing service that none of their agents could represent a buyer on that listing, which would be a potential violation of MLS guidelines.

NAR also noted that this policy would conflict with state laws that allow dual agency as long as it’s disclosed and accepted by the parties involved.

If you are concerned that you may be affected by these new rules, please give me a call and we can go over everything in detail.

Franklin Loan Center | NMLS 237653
Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, 4131316
For questions or concerns please email