New Restrictions on Short Sales

Late last year, new guidelines from the Federal Housing Finance Agency went into effect. The guidelines now require the following restriction to be inserted in the short sale deed itself:

Grantee herein is prohibited from conveying captioned property for any sales price for a period of 30 days from the date of this deed. After this 30-day period, Grantee is further prohibited from conveying the property for a sales price greater than $__________ (120% of short sale price) until 90 days from the date of this deed. These restrictions shall run with the land and are not personal to the Grantee. 

How this new restriction will affect short sales in the coming year, only time will tell. However, at first blush, it would seem that it may deter some potential buyers. It’s possible that certain buyers looking to rehab and/or flip a home may shy away from a deed with such time and price restrictions.

Additionally, many lenders are following suit and starting to require similar deed restrictions. While the time frame and percentages may differ, the requirements and constraints of the above language will still apply equally to any similar lender required deed restriction.

One final piece of advice in this area: Be sure to check the beginning date of any such restrictions. The above FHFA restriction states that it begins as of the date of the deed. However, lender restrictions may use other dates, such as the date of closing or the date the deed is recorded.

Got any short sale or other real estate law questions? Feel free to contact myself and the Sayer Regan & Thayer, LLP team at AThayer@srt-law.com or 401-849-3040.