PCSing Military Homeowners Get New Short Sale Protections

 

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PCSing homeowners current on their mortgage can now qualify for a short sale without taking the typical credit hit.

Prior to the Federal House Finance Agency’s (FHFA) announcement of Short Sale Assistance in June 2012, borrowers forced to move as a result of military order had to be delinquent to qualify for a short sale.

With a “short sale” a borrower wants to sell a home but the value of the property is less than the remaining mortgage balance. In theory the borrower could sell the home and bring the unpaid mortgage balance to closing in the form of cash to settle the debt. In practice most households do not have such cash; instead they find a buyer for the property and ask the lender settle the debt for the market value of the home and not the outstanding loan amount.

Lenders are opposed to short sales because such arrangements require they take a loss on the transaction. To avoid excess losses lenders want to be sure that no better solution is available before they will allow a short sale. In many cases they will only consider a short sale if the borrower is delinquent.

No Forced Delinquency

The catch is that the borrower may not be delinquent. The borrower may well have the ability to continue monthly payments. However, the property has lost so much equity that it cannot be sold for enough to pay off the debt to the lender.

Too often the delinquency requirement simply forces military owners who have the ability to pay their mortgage to skip one or more payments and thus ruin their credit as a condition of getting a short sale. Of course, once a payment has been missed the lender is not obligated to accept a short sale offer and may — in fact — try to foreclose on the property.

According to FHFA policy, lenders and loan servicers cannot tell military homeowners with Permanent Change of Station (PCS) orders who are current on their loans “to intentionally skip making payments in order to create the appearance that they are having financial difficulties in order to obtain assistance for which they would not otherwise qualify.”

 

SCRA Protections

In other words, a lender cannot tell military borrowers that a short sale will be considered only if monthly mortgage payments are missed when the borrower has the ability to make such payments.

The rule also says that lenders cannot ask military homeowners with PCS orders to waive their rights under the Servicemembers Civil Relief Act (SCRA) or any other law before they will provide loan option information or evaluate the homeowner’s eligibility for assistance.

For details visit the Consumer Financial Protection Bureau.

Photo courtesy of TheMuuj