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Is Short Sale the Right Option for You?

Short sale may be an option if you have received notice of default, are experiencing valid financial hardship and there is enough time to close before foreclosure sale.

 

If you qualify we will assist in obtaining Fannie Mae or Freddie Mac, Borrower Response Package. We will do a Pre-Listing Sheet to and estimated cost sheet. Next we will do a Seller’s Short-Sale Document Checklist. A preliminary title report will be pulled to show what types of liens are on the property that need to be cleared prior to closing. Prior to listing we will do a Seller’s Short-Sale Listing Addendum.

 

We must follow servicer protocol in completing additional documentation. Fannie Mae or the servicer will determine value. Freddie Mac is not involved in setting the price however they will provide a minimum net proceeds amount. Fannie Mae and Freddie Mac will allow a streamlined short sale if the borrower/seller is 90 days or more delinquent and their FICO score is 620 or less. 

 

Some of the short-sale programs have guidelines for assisting the borrowers/sellers with relocation expenses, along with caps on what the servicer's can require from them as cash contributions. Owner-occupant short sale sellers who have no financial contribution requirements at closing will receive a $3,000 relocation incentive. We will work hard to get you approved for a short sale. Here is an example of a pre-approval short sale letter. It is important that the short sale seller take responsibility to be certain that there is a written waiver of deficiency from the servicer when closing on the short-sale transaction. 

 

 In today's market, unfortunately, the reasons why short sales are failing are lack of agent awareness of the process and the forms needed, lack of proper qualification of the buyers and sellers, and lack of understanding of the negotiation considerations. In order for us to assist you'll need to sign an authorization to release information form from your Service.

Valid Financial Hardship

  • Health insurance increases

  • Unemployment

  • Job relocation of at least 50 miles

  • Business failure

  • Loss of hours

  • Illness and medical costs

  • Natural disasters

  • Underemployed

  • Increase in mortgage payment

  • Divorce or death of spouse

Hardship Letter in Your Own Words

  • I’m sorry.

  • Here are my circumstances (such as job loss, medical issues, divorce, health issues, or damage to the property not covered by insurance).

  • I have exhausted all my options, and the only next step is letting the property go to foreclosure

 Sample

Hardship Criteria for U.S. Treasury HAFA Short Sales

  • Borrower/seller eligibility is determined as follows:

  • A first lien mortgage that originated on or prior to Jan. 1, 2009

  • Unpaid principal balance limits (not including arrearages):

  • Single unit: $729,750

  • Borrowers/sellers may be eligible for a predetermined hardship if they are delinquent 90 days or more and their credit score is below 620. In this case, the borrower/seller would not have to provide hardship information but would still need to complete the hardship application.

  • The property must be listed with a licensed real estate professional who regularly does business in the community where the property is located.

  • Either a list price approved by the servicer or acceptable sales proceeds will be stated in a Short Sale Notice to the borrower/seller.

  • The property must be listed for not less than 120 days and may be extended for up to a total term of 12 months.

  • The borrower/seller is responsible for property maintenance and repair.

  • The servicer must have a policy on re-evaluation of value and reconcile any discrepancies between the servicer’s independent assessment of value and the market value data provided by the borrower/seller or the borrower’s/seller’s real estate broker.

  • If the new value determination is less than the value determined by the initial Short Sale Notice (SSN) to the borrower/seller, the servicer must notify the borrower/seller and the real estate broker in writing and confirm the new list price or acceptable net proceeds based on the new value. Servicers may not increase the minimum net proceeds required until the expiration of the terms of the short-sale notice (120 days).

  • The servicer must consider the borrower/seller for HAFA within 30 calendar days of receiving the request.

  • If the servicer is unable to respond within 30 days, the servicer must send a written status notice to the borrower/seller on or before the 30-calendar-day deadline.

  • The servicer must then follow up with written updates every 15 calendar days until the servicer is able to provide a short-sale notice or deed-in-lieu agreement.

  • The borrower/seller has 14 calendar days from the date of notification to contact the servicer by verbal or written communication and request consideration.

  • The servicer must notify the borrower of HAMP if the servicer determines that a loan modification could be an option.

  • If an executed contract is submitted with the request for short sale, the servicer must respond within 10 business days and include the Hardship Application or request for mortgage assistance (RMA). The servicer must approve the request for short sale within 30 days or notify the borrower/seller with written status updates every 15 days until the request is approved or not approved.

  • A borrower/seller who occupies the property as a principal residence and is required to vacate as a condition of the short sale or deed-in-lieu may be eligible for $3,000 in relocation assistance.

  • If the property is owner occupied, the borrower/seller may use the $3,000 payment to pay for transaction costs that the borrower/seller has instructed the settlement agent, in writing, to pay on their behalf, such as the cost of legal representation in connection with the transaction, overdue utility bills on the property, or minor repairs made as a result of having been identified during a property inspection.

  • Borrowers/sellers may not use the relocation assistance payment for release of subordinate mortgage or nonmortgage liens recorded against the property and may not be required, as a condition of the sale, to utilize any portion of the relocation assistance to pay any transaction expenses.

Fannie Mae Standardized Short Sale

  • Completed Uniform Borrower Assistance Form (710 Form)

  • Income documentation as outlined in the 710 Form based on income type

  • Hardship documentation as outlined in the 710 Form based on hardship type

  • Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower

FHA Pre-Foreclosure Sale (PFS)

  • The borrower/seller must submit the Request for Pre-Foreclosure Sale and Affidavit to the lender or servicer. The lender or servicer will also require financials and other documents to allow it to approve the borrower/seller for a short sale.

  • Must be owner-occupied (1-4 units). Exceptions can be made when it is verifiable that the need to vacate was related to the cause of default (for example, job loss or divorce) and that the subject property was not purchased as rental investment or used as a rental for more than 18 months.

  • The borrower will receive an Approval to Participate form, which will state the price at which the home is to be listed, as well as the net amount that will be acceptable for approval of the short sale.

  • The investor delays foreclosure to allow for the pursuit of the short sale for four months from the date of the Approval to Participate letter.

  • The borrower/seller can list the property at any time during the process. They do not need to wait for the Approval to Participate to be issued.

  • The property must be listed by a licensed real estate broker, in a local MLS if one is available for that area, and the broker cannot be related to the seller.

  • If the borrower/seller has cash reserves greater than $5,000, the borrower/seller will be required to contribute 20 percent of the total amount exceeding $5,000.

  • Owner-occupant borrowers/sellers who sell their properties using the PFS option are relieved of their mortgage obligation and are entitled to a consideration of up to $3,000.

  • The owner-occupant borrower/seller may elect to apply the entire amount of the $3,000 consideration or a portion of it to resolve junior liens and to offset the sales transaction costs not paid by HUD.

  • Only those borrowers/sellers who are not required to make a minimum cash reserve contribution are permitted to receive the remaining amount of the $3,000 consideration.

  • All additional liens against the property must be released.

  • A lien holder that demands a payment to release its lien must submit a written statement, along with an agreement to release the lien if that amount is paid.

  • HUD will allow an amount up to $1,500 for the discharge of junior liens.

  • Cash reserves include all nonretirement liquid assets available for withdrawal or liquidation from all financial institutions.

The Freddie Mac Standard Short Sale simplifies and streamlines short sale transactions by

  • Allowing our Servicers to review and make decisions about your loan independently, speeding up the process (Servicers are the organization to which you send your mortgage payments)

  • Enabling more struggling homeowners to qualify by expanding the list of allowable financial hardships as well as certain other requirements

  • Offering a quicker transition out of the home and at minimal cost for service members who receive Permanent Change of Station, or PCS, orders

  • Providing a $3,000 move-out allowance for some qualified borrowers; and

  • Paying off and releasing the first mortgage and resolving other mortgage debt.

Postponement of Foreclosure in Short Sale

Fannie Mae and Freddie Mac (Streamlined and Standardized) Short Sale: 

  • While the property is on the market and while the transaction is being negotiated, the foreclosure process may move forward.

  • The servicer will determine if the foreclosure process should be suspended based on how much time prior to the foreclosure sale date the package is received. The listing agent or the borrower’s/seller’s attorney should verify whether the foreclosure sale is being postponed.

  • Once the short sale has been approved, the servicer must suspend the foreclosure sale to allow the short sale to close.

FHA Preforeclosure Sale (PFS):

  • Once the borrower has been approved to participate in the PFS program, the FHA will allow a postponement of the foreclosure sale for 120 days.

U.S. Treasury HAFA Short Sale

  • The servicer may initiate a foreclosure action or continue one that is in progress but may not bring the property to a foreclosure sale from the time the borrower’s/seller’s eligibility is being determined through the closing date.

Non-GSE Traditional Short Sale:

  • ​The foreclosure process may move forward while the property is on the market or an offer is being negotiated. The timeline could continue even after the short sale has been approved. It is imperative that the listing agent or the seller’s attorney work with the servicer to stop the foreclosure clock from reaching the point of a forced sale (foreclosure) to allow the short sale to close.

VA Compromise Sale:

  • It is imperative that the listing agent or the borrower’s/seller’s attorney work with the servicer to stop the foreclosure clock from reaching the point of foreclosure to allow the short sale to close.

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