HUD short sale approval odds

[Tj Floros]

So I'm under contract on my own deal, buying my 3rd multi-family house hack. 

When I first went under contract I had concerns that the seller might be underwater based on loan information I was seeing on the property. But that information is not always accurate. The property had been on the market for roughly 3 years and was over priced by about $100k. 

I got the deal under contract (legal 2 unit) for fair market price on the MLS. I got it for 24k under appraised value. I was supposed to close this past Friday December 12th. On Wednesday night the 10th, I got an email for the sellers attorney stating that after reviewing the final pay off statements the seller was short $35k and did not have the funds to close.

The property was an FHA purchase and there's a 2nd position HUD loan on it which looks like it was taken out during Covid and appears to be for home owners who were unable to pay their mortgage. I'm assuming the current seller/home owner was not collecting rent and unable to pay their mortgage during this time.

The 35k short fall is roughly less than 5% of the total purchase price. My question is, has anyone seen HUD approve shortages ? The sellers attorney is a short sale/ foreclosure attorney and he seems pretty optimistic that HUD will approve the shortage and basically forgive the $35k short fall and allow the building to close.

I'm clear to close and was ready to do my final walkthrough when we found out the seller was short. I talked with my attorney who really hasn't done any short sales since the crash. He's not too sure on the short sale approval. We are allowing the seller an extra month to work with HUD to allow them to approve the shortage and hopefully still close since I've invested a good amount of time and money into this deal along with there is not a lot on the market so I might as well try to ride this one out for now. If I have to pull out the deal I'll still get back my earnest money, I loose out on inspection money, attorney fees, any other cost like that, but that's the cost of doing business.

If HUD does not approve this shortage the property would go into foreclosure I'm assuming. The property is vacant and I'm not exactly sure the current owner is paying the mortgage or not at this point. Like I said it's been vacant for sometime and has been on the market for about 3 years at this point.

I did my own research and it looks like the odds of HUD approving the shortage is high since it's such a small amount compared to the purchase price, it's being purchased on the market, for a good fair price and the buyer, myself, is ready and clear to close at this point. I'd like to get some first person experience on this rather than what I find out on the internet that can be outdated.

My intention was always to close on the property and I still am ready to close. For context this deal is in Illinois, we use attorneys during real estate transactions and I myself am a licensed broker/realtor. 

Thank you! 

[Chris Seveney]

Quote from @Tj Floros:

So I'm under contract on my own deal, buying my 3rd multi-family house hack. 

When I first went under contract I had concerns that the seller might be underwater based on loan information I was seeing on the property. But that information is not always accurate. The property had been on the market for roughly 3 years and was over priced by about $100k. 

I got the deal under contract (legal 2 unit) for fair market price on the MLS. I got it for 24k under appraised value. I was supposed to close this past Friday December 12th. On Wednesday night the 10th, I got an email for the sellers attorney stating that after reviewing the final pay off statements the seller was short $35k and did not have the funds to close.

The property was an FHA purchase and there's a 2nd position HUD loan on it which looks like it was taken out during Covid and appears to be for home owners who were unable to pay their mortgage. I'm assuming the current seller/home owner was not collecting rent and unable to pay their mortgage during this time.

The 35k short fall is roughly less than 5% of the total purchase price. My question is, has anyone seen HUD approve shortages ? The sellers attorney is a short sale/ foreclosure attorney and he seems pretty optimistic that HUD will approve the shortage and basically forgive the $35k short fall and allow the building to close.

I'm clear to close and was ready to do my final walkthrough when we found out the seller was short. I talked with my attorney who really hasn't done any short sales since the crash. He's not too sure on the short sale approval. We are allowing the seller an extra month to work with HUD to allow them to approve the shortage and hopefully still close since I've invested a good amount of time and money into this deal along with there is not a lot on the market so I might as well try to ride this one out for now. If I have to pull out the deal I'll still get back my earnest money, I loose out on inspection money, attorney fees, any other cost like that, but that's the cost of doing business.

If HUD does not approve this shortage the property would go into foreclosure I'm assuming. The property is vacant and I'm not exactly sure the current owner is paying the mortgage or not at this point. Like I said it's been vacant for sometime and has been on the market for about 3 years at this point.

I did my own research and it looks like the odds of HUD approving the shortage is high since it's such a small amount compared to the purchase price, it's being purchased on the market, for a good fair price and the buyer, myself, is ready and clear to close at this point. I'd like to get some first person experience on this rather than what I find out on the internet that can be outdated.

My intention was always to close on the property and I still am ready to close. For context this deal is in Illinois, we use attorneys during real estate transactions and I myself am a licensed broker/realtor. 

Thank you! 

 The real answer is it truly depends. if there is an appraisal on the books they will probably look at the appraisal, look at your price and make a determination. Sometimes the agents will reduce commissions to sweeten the pot as well.