The bank will send you a letter of denial of your application for mortgage modification. In that letter, they will usually say that you may qualify for a short sale, and maybe some other options, such as a deed in lieu of foreclosure. FHA rules require that you attempt a short sale before they will allow you to request a deed in lieu of foreclosure.
So if you get their letter denying your loan modification, then you can send them an application for a short sale. All banks have the same procedures for short sales, which are:
1) List the property for sale with a realtor.
2) Let potential buyers see your home, and make offers to buy it.
3) Accept one of the offers, subject to the bank's approval of the short sale.
4) Send the contract, along with short sale package to your bank, and ask them to approve the sale, and release you from the debt.
5) The bank then sends an appraiser to your home to determine how much they think the home is worth.
6) The bank reports to you how much your home is worth, how much you need to sell it for, and how much money the bank will need to receive, after all of the sale expenses are paid.
For an FHA short sale, the bank will want to receive 88% of the sale price, which leaves you with 12% of the sale price for paying all of the other expenses, including property taxes, realtor, title expenses, attorney, transfer taxes, other liens, etc.
For FHA short sales, it's the Illinois property taxes that hurt your chances of a successful sale, because they eat most of the allowable 12% of proceeds.
If you have experience dealing with FHA short sales, then you find ways of getting the numbers to work out. I told you some of the ways we do that, but there are others.
If you're not able to get the bank 88% of the purchase price, within about a month, then it drops to 86%, and then to 84% after one more month. FHA short sales usually close at the 84% level, if they close at all, because of the Illinois property tax problem.
They are still difficult to complete, even at that level.
7) If the buyer you have won't pay the price that the bank wants, then you cancel their contract and try to find a different buyer.
It sounds easy, but if you make mistakes in any part of the short sale process, then you will fail your short sale option.
You show the home to more potential buyers, and when you get the contract you need, then you send it to the bank and ask for approval of your short sale.
8) If the numbers work out, then the bank issues what they call an Approval to Participate (ATP) form.
9) Once you and the buyer are ready to close the sale, you then send the final closing documents to your bank, and ask for approval to close.
Sometimes when you get to this stage of the process, the bank stops communicating, and just doesn't issue the final closing approval. That requires us to contact FHA directly and ask them to intervene.
FHA used to be helpful in this situation, but stopped being helpful in January of 2014.
10) If the bank issues you your closing approval, then you close the sale. Hopefully we have approval from the bank, for you to get $1,000.00 from the sale of your home.
But that $1,000.00 is part of the 12% to 16% of the sale price, that you're allowed for the expenses of the closing.
I hope this explains the FHA short sale process to you.
Realtors experienced with short sale know strategies for dealing with problems that arise during the short sale process. Not all short sales are approved.
Tip: Work only with realtors EXPERIENCED with short sales.
By dealing with my office, I almost always get you out of the FHA mortgage debt, whether or not the short sale gets approved.