Understanding the HUD/FHA Short Sale Process

by on May 14, 2012Shannon O'Brien

Distressed homeowners who have exhausted most other methods to avoid foreclosure on their homes typically decide to perform a short sale.

If you have an FHA-backed loan, you’ll be happy to learn that the United States Department of Housing and Urban Development (HUD) offers a program, known as the Pre-Foreclosure Sales Program, which allows the seller in default to satisfy his or her mortgage debt despite the fact that the home is worth less than what is owed.

fha short sale processThe sale must be what is known as “arm’s length,” meaning that the parties to the sale, including the real estate agent, must have no relationship to each other. Furthermore, HUD has a tiered net proceeds requirement that states:

  • During the first 30 days on the market, the homeowner can only accept offers to purchase that result in at least 88 percent of the appraised value of the home.
  • During the next 30 days, the offer must be for at least 86 percent of the appraised value.
  • For the remaining time the home is on the market, the seller can only accept offers that are for a minimum of 84 percent of the home’s appraised value.

The seller may not make the following concessions to the buyer:

  • Repair allowances
  • The cost of a home warranty
  • Discount points on loans other than FHA-backed loans
  • Payment of the lender’s title insurance fee

Eligibility requirements for the HUD Pre-Foreclosure Home Sale program include:

  • The home must be owner-occupied. Exceptions to this requirement include homeowners who were forced to move due to involuntary job transfer, death of the homeowner, job loss and divorce, provided the home was not rented out for more than 18 months.
  • The homeowners must provide proof of their inability to pay the mortgage and their need to vacate the home.
  • The homeowner must be at least 31 days delinquent on mortgage payments at the time the sale closes.

Advantages of the HUD Short Sale Program

While a homeowner underwater on a mortgage has little to be optimistic about, the HUD Pre-Foreclosure Sales Program offers a glimmer of a silver lining in the situation.

The sale’s proceeds, even though less than what is owed on the mortgage, completely satisfy the debt. This should provide some peace of mind to homeowners in states that allow deficiency judgments, as they are assured that they won’t be liable for the deficiency amount in the future.

If the short sale closes within 90 days of the date of application, HUD pays the seller a $1,000 incentive. If the home takes longer to sell, the incentive is reduced to $750.

HUD allows for a real estate commission, up to 6 percent, so you won’t have to proceed without agent representation. It also allows various customary closing costs.

If the buyer is using a FHA-backed mortgage, HUD allows the seller to pay 1 percent of the buyer’s closing costs out of the proceeds.

If you feel that you qualify for the HUD Pre-Foreclosure Sales Program, get in touch with a HUD-approved foreclosure avoidance counselor via HUD’s website.

Short Sale Definition, Tax Treatment and Other Ramifications

{ 92 comments… read them below or add one }

Carole January 4, 2015 at 3:43 pm

We have a home in Cascade, MD. We lived in it for 40 years. We had decided to remortgage and pay off bills, which we did. Several years later we bought ahome to downsize. We have rented the house for 2 1/2 years. The first renters wrecked the house and we had $9000.00 in repairs to do. Now we have renters who will be moving in June. The only way we can pay the mortgage is by the rent income and it is $200.00 less than our payment. We are both retired and tired of the stress. Sometimes we have a hundred dollars left after bills. What can we do?


thomas November 21, 2014 at 11:32 am

On an investment property, I Got a $20k incentive from JP Morgan, but the total Capital Loss on the Investment Property is $115,000 (Purchase $455k, short sale $315k).

How do I report the capital loss to offset the $20k? I also had to pay out $7k to Wells Fargo for the HELOC. Any advice?


Cathy October 24, 2014 at 5:48 am

I applied for a Deed in Lieu, completing the entire Loss Mitigation package, which was accepted by BB&T (mortgage holder). BB&T decided they wanted to try short sale first, which was fine by me. The townhome had been on the market for 7 months with little to no activity. (Long story short – due to the negligence of a plumber we hired to fix a pin-hole leak in a water pipe, the piece that the plumber put on the pipe blew out and flooded my entire downstairs. Had to move out while repairs made, and due to husband being unemployed and also owning a property, we moved to his property. Couldn’t afford both properties.) It was a HUD loan. I paid 72k for the 2br townhome 16 years ago. Neighborhood deteriorated rapidly, with owners unable to sell renting. Anyway, BB&T had the property appraised, and it appraised for $48k. BB&T advised my realtor as to the price point of what we would need to sell the property for (short sale). After 90 days, one offer fell through. Another 90 days, at the very end of 90 days, 2 offers came in the same week, one for cash: $48,500. (By this time, even though they said they would refer to foreclosure since I applied for “Deed in Lieu” — they did turn over to foreclosure. A foreclosure sale at the courthouse had been scheduled when the 2 offers came in. BB&T advised my realtor that both offers were “viable”. BB&T then ordered another appraisal, and this one came back at $70,000!!!! BB&T turned down the cash offer and denied my request for short sale, as well as Deed in Lieu, after initially approving it, stating there was “too much equity” in the property! (My financial situation had NOT changed, my 62 year old husband still cannot find employment and filed for SS.) How in the world can the property appraise for $22,000 MORE just 6 months after the 1st appraisal? I have no idea what is going to happen next, as I was just informed of the denial last week. I feel like BB&T has screwed me over. First, they lied when they said that as long as I had applied for “Loss Mitigation” (Deed in Lieu) it would NOT be referred for foreclosure; then they walked away from a CASH offer????? I just don’t get it. Anyone have anything like this happen to you?


Cathy October 24, 2014 at 5:50 am

**Correction to above: I was told by BB&T that they would NOT turn my property over to foreclosure since I had applied for Deed in Lieu. But they did.


Cathy October 24, 2014 at 5:52 am

Additional Comment: I owed $52,000 on the $72,000 loan.


voyant October 11, 2014 at 12:12 pm

I do enjoy the manner in which you have framed this specific difficulty and it does give us some fodder for thought. On the other hand, through everything that I have personally seen, I simply hope as the commentary pile on that men and women continue to be on point and in no way get started on a soap box of the news du jour. Anyway, thank you for this fantastic piece and though I can not really go along with this in totality, I value the perspective.


D Lynn Ballard September 18, 2014 at 9:32 am

My daughter is several weeks from closing on a home. Her previous home was sold as a short sale in 2009. Just found out this morning thru a credence report that the insurance company just paid off the mortgage for the previous home in March 2013. FHA wont allow you to purchase again for 2 years after a property short sale. However, she is being told that she cannot purchase again til after March 2015 because the insurance didn’t pay off the mortgage until nearly 4 years after the sale in March, 2009. Is there anyway around this since she could not control when the insurance company paid off the mortgage on a property sold in 2009; it is now Sept 2014?


Ami September 14, 2014 at 7:05 am

In the state of Florida must all offers for a short sale be presented to the bank or is this at the buyer’s discretion? Especially if backup offer is better offer than offer which will be presented.


AB August 5, 2014 at 11:42 pm

Just wanted to share with you how stupid Bank of America is…I give these banks three years tops before we see bailout v2.0 again.

July 2013 – offered 14k above asking price on a short sale property, cash sale. My offer was highest and best, they accepted. About 5, 6 amendments later to extend the closing date, my last amendment is to close in September 2014 (14 months, someone please put me in the Guinness book of records).

The funny thing is they just did one of those drive-by appraisals, which they call a variance report. In summary, they took a picture of a tree in the front yard and low and behold, the property all of a sudden is worth $40,000 more according to them.

I think they saw this surge in pricing in the last year and are looking for a way to get out of the purchase and sell it at a higher price. Will be very interesting when they open the door and find the new water pooling in the basement and the kitchen that was recently vandalized by intruders. Greed is what made these banks, but it will be what destroys them. Meanwhile, us cash buyers will be taking our money elsewhere every time they play us like this.


Tonya July 15, 2014 at 3:36 pm

My son has purchased another home due to the decline of the neighborhood of their current home that is now on the market. There is no way they will get from the sale of the house what is owed. There is no real hardship and they are not behind on the payments. The only hardship is there is no way they will get what is owed on the loan. Would this qualify for a short sale from their lender?


Peter J. Clarke May 15, 2014 at 9:26 am

Very significant suggestions that you have said, thank you for submitting.


Cathy March 19, 2014 at 11:26 am

Hi Stephanie,
I am in the process of purchasing my first home, I found this house online as a regular listing, went to see it and placed an offer of 3K less than the list price, the seller accepted and we went in to contact with 2K in closing help by mid January. One week before closing, 3-10-14 I get a phone call that she has applied for a short sale, needless to say we did not close on the 17th like we had been scheduled to, weeks prior. I am currently day by day waiting to hear when my closing day will be and I have to be out of my current rental by the end of March. My agent said I can ask for a Buyers Temporary Lease, which I did but I am hesitant to even move in because I have no idea if the sellers lein holders will even approve the sale or come back with a counter offer that I don’t want to pay. I don’t want to move in just to have to turn around and move out. I know I can’t walk away at this point, but I sort of want to. How can they submit for a short sale so close to closing, my rate lock is about to expire and I may have to find a temporary rental because the seller can’t get it together.


Linas Muliolis April 7, 2014 at 3:21 pm

Why do you say you can’t walk away at this point?
Did you agree to an extension and is it signed by both parties?
If not – ask a lawyer about not knowing in advance that this would have to go short sale, and point out that your contract dates have come and gone already. If you agreed to an extension after finding out about the short sale, not sure what then, except possibly losing your earnest money deposit… I’m not a lawyer, I can’t give legal advise, but I’d be leary of moving into a house with a contingency of seller’s lienholder(s) agreeing to the transaction.


Mary February 21, 2014 at 7:58 am

Hello….In May 2013 I was transferred from TN to Florida. During the summer we put our house on the market with a realtor for Short Sale. Thankfully, everything worked out and we sold the house in December. It sold for about $40,000 less than what we owed on it. We have called our Lender (Wells Fargo) to see if we were going to get a 1099 because of this. They stated that it since it was an FHA loan it was up to FHA whether or not they would send us a 1099. We have everything for our 2013 taxes but have not had them prepared yet because we are unsure if we will be receiving something from FHA or not. Do you know if we have to contact someone ourselves or what process we need to follow? Thank you for your time


Laura March 7, 2014 at 11:22 am

I am on the same boat. I’m curious, Mary, if you have heard anything from anyone else or if you have even figured how to file?


ella October 6, 2013 at 4:36 pm

Hi, I live in Md. I have an investment property where the mortgage is upside down. Have a conventional loan. Currently unable to rent because the place was recently burglarized and all radiators, copper pipes were stolen. In addition there is water damage and it maybe mold. Would like to list property and try to sell as a short sale. The insurance would cover some damage but we need to come to the table with $$ hat we do not have. Do you recommend hiring a real estate attorney? We are seniors.


Christine October 7, 2013 at 5:19 pm

Hello Ella! My name is Christine Pollard and we are Short Sales Specialists here in Southern Maryland. If you are considering selling your property, you need a team of people dedicated to helping you accomplish that with the nuances involved, including a real estate attorney versed in short sales. Please give me a call to discuss! You do have options… You’ll be glad you did!


maria lopez August 28, 2013 at 2:45 pm

anybody, i need a advise in a short sale, i am approved for a short sale By FHA.
but my realtor is saying that is no a relocation insanest. can you all advise on that and advise me if is a good idea to do a short sale.


Buying NJ Homes August 22, 2013 at 9:53 am

A deal should be made by the home-owner and the Bank in order for the house to be sold. Sometimes the problem about it is that the house had 2nd loan in it. Still, the process of selling the house will took a while than the usual thing. This is because a third person will be involve in the process (which is the Bank). With the short sale the seller has full control about the property, even in the decision making.


Kyle June 5, 2013 at 8:47 am

We have been in contract for 12 months, trying to short sell our house. Our short sale attorney has a contingent fee of $1695. We were told that they were 50/50 successful at having the bank pay this fee. Now we finally have an approval to close, and come to find out that FHA NEVER covers attorney fees. Is this accurate? If so, I’m not happy with the attorney’s office…


Antonette Solano June 16, 2014 at 10:11 am

FHA does pay legal fees, normally $750-$ !,500


Christina January 24, 2015 at 5:31 pm

Does FHA pay legal fees for the buyer? I’m currently in contract for a short sale and looking to get additional concessions.


Tim May 18, 2013 at 6:53 am

I have recently begun a short sale process in a house that I moved out of June 2010 due to a military PCS. I attempted a loan modification to reduce the payments so any rent that I received would cover the cost of the mortgage until the market recovered, but I was not approved after 12 months of trying. After that renter moved out, I asked Wells Fargo to start a short sale. They said I needed to be 3 months behind, so I let my payments go late. While I was letting my payments go late, my property manager moved new renters in. So I maintained no more than 90 days late until they moved out. This severely crippled my credit score. As soon as they moved out, I put the home up for short sale. I received an offer last week for $5000 less than what I owe to Wells Fargo. I see no reason why they wouldn’t accept that offer. It’s an FHA loan. The buyer is asking for $4000 in closing costs. Does the bank cover closing costs and the commission fees? Also, does a short sale wipe out the lates on my credit report? I’ve been trying to research online, but I am finding answers that say yes and no on these three questions. I know the FDIC put out an FIL last summer that specifically states that a military PCS qualifies as hardship and that banks will not allow the short sale to harm military in my situation. I have filed a complaint through the CFPB to try to fix the lates. Also, how long can I expect Wells Fargo to take to complete the process? I am due to return from overseas in 3 months and I would like this to be completed by the time I get home, or I will likely need to go further in the hole on payments.


Gary May 4, 2013 at 11:45 am

I am trying to buy a short sale house with an FHA loan through Wells Fargo Bank in the state of Arizona. The house appraised at $346,000. The seller real estate agent along with the seller retained a real estate lawyer to help with negotiations. He sent me a letter stating that the bank will pay the commission of 6% back taxes in $2500 towards HOA lien asked me to pay the additional $2000 and HOA lien. Stated they will pay the settlement fee and title insurance. The fees they would not pay would be HOA transfer, which in Arizona can be no higher than $400. HOA disclosure which I believe is free. He said that according to HUD”s guidelines first 30 days would be 88% of appraised value. We are at 84% net to value level. He said 88% I would have to pay $333,000 and 84% I would have to pay 319,000. I sent him an e-mail stating that 84% of $346,000 is $290,640 and 88% of $346,000 is $304,480. I was there $29,000 in closing costs. His response was “They are the cut art closing costs that they must pay according to government guidelines. Taxes, HOA dues of 2500, settlement fees, lender coverage and other fees. These are the fees they are required to pay on a short sale and the numbers factor out correctly”. Somehow this doesn’t seem correct to me. He stated in his earlier letter that the bank would be paying those fees. Am I paying his real estate commission and do the guidelines required that I pay it. Any help I can get understanding this would be greatly appreciated.
Thanks in advance


Shannon O'Brien May 5, 2013 at 11:05 am

Gary, please contact a real estate attorney. That is the best advice I can give you.

Best of luck to you.


Cynthia April 4, 2013 at 11:21 am

Good Afternoon,

My husband and I are in a process of purchasing a short sale home in MN. We have put our offer in since mid December. The seller had accepted our offer and now waiting for the bank to approve it. An apprasial was ordered from the bank and I had ordered the second one. The first apprasial is 50k more than the second. I am now waiting for FHA to approve the sale. Do you know how long it can take for them to approve it.
The home is listed for 199,900 and we offer 190,00. Do you think they will accept our offer? thanks


Jen April 5, 2013 at 11:37 am


Good luck, I have been trying to purchase a short sale home for CASH and we started the process in September of 2012. We have now been told that we will have to wait for another month and 1 week before we can close due to HUD. I’m trying to understand why we have to wait when we are paying cash and there is no loan! Very frustrated and will be searching for another home while being forced to wait on this one.


Tee Cee March 20, 2013 at 12:03 pm

Good Day All; If you sold your house through the Short Sale Process due to financial hardship because the death of your spouse. The HUD Short Sale Program states: you won’t be liable for the deficiency amount in the future but they turn around and list you on a CAIVRS List. I don’t understand; that appears to be very misleading because during the Short Sale Process no one ever mentions anything about CAIVRS. Can anyone share any insight on this?


Jaye April 13, 2013 at 8:41 pm

Being on the CAIVRS list prevents me from getting another govt backed loan because of defaulting on one previously. No, I won’t be liable for the deficiency (thank goodness) but I also can’t turn around and get another FHA loan for 3 years. Not a big price to pay, but I guess I’m just grateful for the relief. It’s going to take time to rebuild my finances so that this never happens again.


Craig March 8, 2013 at 11:49 am

I submittted an offer in the first 30 days of listing of a short sale, that did not meet the 88% figure but was at the 84% of home’s value(the realtor told me that it would buy it for the offer I made). That was over 90 days ago, I kept that offer on the table, and now I am being told that I cannot buy the house for that price, I would have to come up the extra 4%. I said no to that, now the house is listed for the offer that I made 90 days ago but because my offer was originally rejected they cannot take any other offers from me unless I pay the 4% over what it is listed at now. Can this be correct.


Shannon O'Brien March 8, 2013 at 1:03 pm

My best advice to you is to ask this question of your real estate agent. If his or her answer isn’t satisfactory to you, find another agent that can give you the straight scoop.

Good luck!


laura March 4, 2013 at 4:47 pm

I have my home just on the market today, it will be an FHA short sale. Do I have to pay any taxes on the deficiency next year? Will I receive a 1099? And does anyone know how many months you can be late on mortgage before foreclosure starts and then how long it actually takes with bank of america? Also wondering if anyone out there has asked there mortgage lender for a deed in lieu of foreclosure if their house isn’t selling after 60 days?? Thanks for any help :)


William March 11, 2013 at 12:19 pm


Not sure about the 1099 or taxes, but the deed in lieu is the last thing you want to do, if short sale dosent work out you want to stay in the home and wait for their authorized agent to contact as it will follow a move out assitance from the bank of some amount of money, a deed in lieu has no benefit as it is just another form of foreclosure. Just some bit of advice from a REO realtor


Tee Cee March 25, 2013 at 10:11 am

I sold my house through the Short Sale Process due to financial hardship because the death of your spouse. The HUD Short Sale Program states: you won’t be liable for the deficiency amount in the future but they turn around and list you on a CAIVRS List. I don’t understand it; because it appears to be very misleading because during the Short Sale Process no one ever mentions anything about CAIVRS. I would suggest you get some information on CAIVRS as well. I posted a question on March 20th but I haven’t received any responses. Be careful and find out all of the hidden things. God Bless & Good Luck.


Kim February 18, 2013 at 9:28 am

I have been in contract for almost a year now patiently waiting to purchase my first home. Bank of America and USAA bank hold the liens. Both have been approved; Paperwork went to HUD in December for approval… We are nearing March and I am very concerned that is taking so long. Can HUD refuse the sale? How long does HUD normally take?


Shannon O'Brien February 18, 2013 at 1:01 pm

Hi Kim

What is your real estate agent telling you about the situation? He or she should be in contact with the listing agent for updates. If I were you I’d get on my agent and demand some feedback.

Hope it all works out for you!


Ash February 14, 2013 at 6:07 pm

I own a town house that I need to sell in the Dallas area. I need to move to Montana, my mother is recovering from a stroke and she and her husband are getting older. They need someone nearby. I feel like there’s no chance I will ever get what I owe on my town house. At one time I had a foreclosure on both sides of me. Then one next door has just sold for about $12,000 less then I owe on my house. There’s some other houses on the street that sold this last year for about $15,000 less then I owe on my house. I can still make my house payments barely even though I have $23000 in credit card debt and $52000 in student loans. I thought a short sale might be my answer to get out of this situation but now I don’t know if it will work. I have an FHA loan. If I am still making enough to make my house payments is that going to stop a short sale from being able to work???? Do I have any other options?


Shannon O'Brien February 18, 2013 at 1:06 pm

Ouch. All those foreclosures in the neighborhood are sure to drag down the value of your home.

First, thoroughly go over your finances — determine exactly how much goes out every month and how much comes in. You have a lot of debt. . .are you just paying the minimum on the bills? Once you do a thorough accounting you may find that you really don’t have enough to pay your mortgage every month but that you’ve been “robbing Peter to pay Paul” every month to make things work.

Then, speak with a HUD housing counselor about your situation. Not sure if the parent thing is considered a hardship, but I’d go to the experts to find out.

Have you considered bankruptcy? Yes, I know it sounds terrible, but sometimes it’s the best option, especially if you have a lot of debt aside from the mortgage. Speak with an attorney about this option.

Good luck, Ash. I hope everything works out.


Jaye April 13, 2013 at 8:46 pm

Good answer.


JB March 5, 2013 at 2:38 pm

You should contact your county’s Assessor. Considering the falling home values around you, you may be able to get your home value reassessed, which will lower your property taxes, insurance, etc.

This can lower your monthly payments to allow you to stay above water a little longer. Good luck!


Sc February 8, 2013 at 9:27 pm

I will be putting my home on the market soon. I am fairly sure that i will not get the amount of the current mortgage value. I will be building my new home starting late spring. Is there a way to either get a short sale? (I am not behind on any payments or in fear of getting behind)? If i can’t get a short sale, is there a way to roll the balance left on my current mortgage after the sale into my new home construction loan?


Shannon O'Brien February 9, 2013 at 5:28 pm

A short sale is for borrowers who are underwater on their mortgage and have a verifiable hardship that requires them to sell.

It doesn’t appear that either of those apply to you. Besides, the bank will want every penny of whatever money you have saved to put into a newly build home to make up for the amount you’re short after the sale of your current home.

Have you considered renting it out until the value increases?


Mackenzie February 3, 2013 at 7:54 pm

My husband and I looked at a short sale home the end of December. It was lsted a $130,000. Our agent told us repeatedly that he seller’s agent had said this number was already approved by the bank. A few days later we went into contact at $129,750 with the seller paying $2200 in closing. We also were told this number was approved already by the seller’s bank. We had an inspection, paid our lender fee, paid our escrow and everything seemed to be fine. Three weeks later we find out that the person at the seller’s bank who told the seller’s agent to drop the list price to $130,000 from $139,999 (where it had gotten no activity) no longer worked for the bank and his file on the property was missing. And the seller’s bank was saying the house never should have been listed at $130, 000. Our agent wrote an account of what had happened on our end and a few days we find out that bank wants to approve our sale- and THIS is when we find out it is an FHA shoe sale, at this point!- bc now the bank has to ask HUD for a variance bc the net on the home will be less than 84 percent, apparently, after commissions, etc. We are furious that this all happened. We are not the ones who listed it in incorrectly. We do not have a lot of money, we have been tying to buy our first home for years, and now, bc the seller’s agent and bank screwed up, we may be out the money we have already spent. We had no idea it was FHA. We may never get a home now. What chance do we have of HUd granting the variance? If they do not, we may have to pay an extra $5k on the home- the difference between their supposed net and actual. Do not know if we can do it. We feel the seller’s agent should forgo commission and pay our difference. He screwed up, not us!


Todd Slack February 5, 2013 at 4:14 pm

Don’t put it all on the seller’s agent. Your buyers agent should have known or researched what type of loan was on the property before you even wrote the offer on a short sale. Easy to find out. The short sale process can be very tricky with or without an FHA loan short payoff.


Shannon O'Brien February 8, 2013 at 12:21 pm

Mackenzie, there are several things that trouble me about your situation, not the least of which is that it’s a big, fat mess.

You say that you “went into contract” at the $129,750 sales price with $2,200 in closing costs. I’m assuming you have a purchase agreement with signatures of all parties? If so, it seems like a no-brainer to me — the bank eats this one.

But, to be safe, I would stop listening to the verbal assurances of the agents involved and pay for a consultation with a real estate attorney. I do hope you will take this advice. . .

Best of luck to you.


Hong Nguyen February 3, 2013 at 5:31 pm


My husband and I purchased a home in Seattle, WA since 2009 but it has been difficult for us to pay our mortgage lately due to a new baby in the family and decrease in my husband work hours. We have FHA loan and were thinking of doing a short sale. Do FHA short sale provide mortgage forgiveness dept? If so, what form do they use? How do I proceed? Thank you for reading this.


Shannon O'Brien February 8, 2013 at 12:23 pm

My advice to you is to find a real estate agent that specializes in short sales. Don’t just take the agent’s word for it, either, but ask for proof as to the number of successful short sales he or she has handled.

Best of luck.


f andrade February 1, 2013 at 10:59 pm

hi i want to buy a home , in las vegas (cash) what would be ur advice if the offer was submited at 08/31/2012 now is 02/01 /2013 im kind of curious , because of the price of the property , also the lady called me telling me that the escrow company found that the owner had “another loan on the property” and they had to start over on the documentation, this issue awaked me about it now, i have too many questions around my head , and dont trust any more on my realtor agent do i have the right to ask for a new apraissal? because the home was advertised for 79k then when i submited the offer with my agent she told me sir you need to offer more than that because there are too many buyer behind that home so i ended convinced offering 82k , so by the way we are now 5 months after, the offer was submited and they finally had the papper work ready to sign ,but now i saw the home advertised by zillow estimated by 69k ,by the way the pappers they showed me had an affidavit that says arms length transaction and i also saw another doc with hud-1 terms my question is what would be ur best advice? , what my rights are? should i get another apraisal? how can i know if this property doesnt have hidden liens or something that could afect my situation , i have read about realtor and escrow scammers that rip off people who dont know tha much about the bussines , i gave them 2000 dlls to open the escrow services , if i decline this transaction i still have the right to ask for my deposit? what can i do ? who sould i contact to recheck all these papers before i commit a big mistake!! thanks for your help


Shannon O'Brien February 2, 2013 at 7:15 pm

My first suggestion is to stop assuming that the prices you see online are necessarily near reality – they may not be.

My advice is to hire a real estate attorney. This is the only way you’ll get answers that you can trust.

Best of luck to you.


Ron January 27, 2013 at 4:47 am

What happens to the min. price that the lender can accept after the house has been on the market for 120 days?


Shannon O'Brien January 28, 2013 at 11:18 am

First, the minimum price mentioned is what the homeowner can accept, as mandated by FHA.

The appraisal is only good for 120 days, so the mortgagee would have to obtain a new appraisal to determine as-is fair market value at that point.


Kim January 22, 2013 at 10:05 am

Good morning! We are on the other side of the short sale coin, trying to purchase one. We are currently in month 11 of this process. I don’t know all the details of the seller’s loan, but what I do know is that the bank denied the short sale, they appealed to HUD and HUD has also denied it due to the fact that the home has been rented out more than the 18 months. I know the seller has now contacted an attorney as their realtor has exhausted everything she can do.

My question is how likely is it that they are going to be able to get this short sale to go through or is this home more likely to end up going into foreclosure? We are in Las Vegas. Thank you for any insight!


Shannon O'Brien January 22, 2013 at 8:39 pm

Wow, Kim, what a mess. Amazing that you’ve hung in there for almost a year. HUD has pretty strict rules and that 18 month figure is valid.

I wish I had a crystal ball and could tell you where this deal is heading. Maybe the attorney can work some magic, but I wouldn’t hold my breath.

You also need to think about this: housing prices are rising in Vegas. Not as quickly as some would like, but they are rising. If you wait too long you may get priced out of the market should you need to start looking at houses again.

It’s a big decision — especially since it seems like you have your heart set on this particular house. Do yourselves a favor — at least keep shopping. You never know — you may just find another one you like as well.


Tim January 20, 2013 at 8:37 pm

I short sold my home in December 2011, which was backed by the VA. If my credit has recovered can I apply for a conventional loan now, or does the waiting period still apply, even though it was a VA loan. Also, does the VA always cover the difference when a VA loan is short sold? I don’t remember ever getting approval from the VA for the short sale, it seemed as though Wells Fargo approved it. I would assume the VA would have had to approve it if they had to pay the difference between the loan amount and purchase price.


Rod January 20, 2013 at 8:33 pm

I had a short sale done last year and my credit report still shows an outstanding amount of $28,000 The loan was an FHA through HSBC. The home is in New York State but not New York City.
What are the tax implications and should this amount be removed from my credit report? Do I owe the bank?


Shannon O'Brien January 22, 2013 at 8:40 pm

Hi Rod,

Contact your accountant for advice specific to your situation.

Good luck!


Alicia Chamblee January 17, 2013 at 10:39 am


You continuously mention in your responses how important it is to have an expert short sale agent. Do you have any recommendations for Dallas, TX specifically the southern sector of the city, i.e., Ellis County?


Shannon O'Brien January 22, 2013 at 9:04 pm

Hi Alicia,

I’m sorry, I don’t know any agents in your area. Start talking to people — neighbors, friends, family, even the check out lady at the market. Everywhere you go ask people if they’ve ever done a short sale or know someone who has. The chances are good that you’ll find someone that has and can get a referral to an agent.

If there are other homes in your area that are short sales, stop by and talk to the owners about their agent.

When you do interview an agent, make sure he or she has massive experience with the short sale process. Check the agent’s website. If you don’t see short sales mentioned, find another agent.

Best of luck, Alicia.


Bob January 16, 2013 at 9:31 am

I have an FHA loan and in the process of trying to short sale my home. Are the steps the same doing a short sale with a conventional loan as they are with an FHA loan? Are different documents required or does the bank understand that an FHA shortsale is being completed? My agent stated we will wait for the bank to ask for the required documents. Does this seem accurate?
Thank you for your time!


Shannon O'Brien January 16, 2013 at 11:31 am

Hi Bob,

FHA’s Preforeclosure Sale Program is quite different from the conventional short sale process. In a conventional short sale, first you get the offer then you ask the lender for permission for the short sale to that buyer.

In the FHA Preforelcosure Sale, you should apply to FHA for a short sale before the home is even listed.

Furthermore, most of the larger lenders, such as Bank of America, have clearly defined steps with lists of the documents required. That your agent is willing to “wait for the bank to ask for the required documents” is rather frightening and hints that the agent is inexperienced.

If this is the case, fire the agent and find one that deals with short sales on a regular basis. The short sale isn’t the place for a newbie agent and your transaction shouldn’t be expected to be an agent’s training session.

Best of luck!


Bob January 16, 2013 at 11:53 am

Thank you very much for the response!!! I guess I’m a little confused on the FHA short sale process. I’ve sent numerous documents to my agent and then she has sent them to the bank. I’ve been approved for the short sale by the bank, but obviously need someone to make an offer before we can proceed. Does this mean the bank has already approved my FHA Preforeclosure short sale?
Thank you again.


Angela January 12, 2013 at 10:28 am

Hi, we short sold our house a few years ago, and now as we are trying to buy another home the new lender wants proof that the hud was paid with the funds from the short sale. I tried to call hud & they dont give that, they only tell you if you are eligible to buy another fha house. Any advice on this, btw, it was also a b of a loan…which still shows on our credit report even tho we have a deed of sale showing it sold…


Shannon O'Brien January 12, 2013 at 12:28 pm

Hi Angela,

If you used a lawyer at closing, you should be able to get a copy of the HUD-1 from him or her. Otherwise, send a QWR (Qualified Written Request) to the servicer and ask for a copy. You might also ask your real estate agent for a copy from his or her file.

Short sales mess up your credit, no getting around that.

Hope this was helpful!


Priscilla R January 1, 2013 at 5:06 pm

I currently own a house in Florida of which I purchased in 1997. My husband was active duty when the home was purchased and had been stationed in Florida already for 2 years. I know that there are unforeseen circumstances, sudden moves and transfers, however with the rate and job that he performs he was able to stay in the Jacksonville area for almost 15 years. In 2009 he received orders to Japan and we prepared our home to be sold and placed it on the market in of Oct 2009 via For Sale By Owner and in Dec 2009 we listed it with Watson Reality. Our home is in a lower income neighborhood but we had remodeled it in 2006-2007 investing in excess of $60K in upgrades and additions when our 3rd child was born. At the time he was an E6 and I had a promising career with BofA, our credit was good and we never missed a payment in the 13 years we lived there. Once we left Florida heading to Japan in Jan 2010 we continued to make our payments on the home and our realtor was doing everything she could to sell it, but with the housing market in shambles the price was too high for the area (the home was refinanced in 2007 with an appraisal of $206K). With our home on the market for 10 months and our savings disappearing due to myself not working, we decided that a short sale was our only option. First we attempted the HAP program afforded by the military and we would have had to bring $50K to the table (of which we did not have). So we contacted Flagstar about a short sale and they stated we would have to be in default of payments to even start the process, therefore we discontinued any further payments in July 2010. Our realtor quickly submitted all necessary documents for approval from Flagstar Mortgage for an approval for a short sale on the property. Its is now 3 years later, we have had a total of 5 contracts pending from multiple buyers and Flagstar has continuously failed to process the sales! We are currently under contract, since Dec 2012!!!! Every month we update Flagstar with all necessary documents required and every month we are told the file is “pending review/approval of a short sale” Our credit has been turned upside down, which we were expecting to a certain degree but also figured within three years we would be able to start rebuilding it! We have done everything we possibly can to sale this home, to avoid foreclosure, yet Flagstar Bank has refused to process in a timely manner. Is this legal? We will be returning to Florida (march 2013) and fear we will struggle finding a home to reside in due to our credit and current housing situation. We would love to be able to put all of this behind us and start rebuilding our credit and lives. My Husband and family have served this country for 18+ years and continue to do so. We feel like we have been done a grave injustice by Flagstar Bank and we would greatly appreciate anything and everything that you could do to help us!

The Runyon’s


Shannon O'Brien January 2, 2013 at 12:26 pm

Mrs. Runyon,

Wow. What a mess. That this is happening to a man that has been serving our country for almost two decades is beyond obscene.

Do you have a VA loan on the home? Did you qualify for HAP because of a PCS? I don’t understand why you needed to bring $50k to the table.

What does your agent say about what’s going on with Flagstar? Is he or she advising you?

This is a complex situation and your agent should be on top of it and keeping you advised. Without knowing what type of loan you have though it’s difficult for me to give you an informed opinion.

If you can’t get satisfaction from your agent, find another one. Also, I suggest you call your local Armed Forces Legal Assistance office.

I do hope this works out for you and your family.


mike November 22, 2012 at 12:37 pm

We live in pa, we have a home loan with bank of america. I lost my job last november and have been out of work since. Our monthly payment has increased almost $400.00 a month due to tax increases. we are behind 3 payments and BA says there’s nothing they can do. they have’nt returned a phone call in over a month. Is there a program that will allow us to buy a cheaper home and short sale this one. thank for any help.


Shannon O'Brien November 23, 2012 at 10:56 am

My best advice to you is to hire a local real estate agent who is familiar with short sales.

Best of luck to you!


Val January 15, 2013 at 3:40 pm

I’m not in the mortgage field. However, I had the same problem with Bank of America. They didn’t return my calls for a good six months. I finally asked my lawyer about it (I didn’t know what to do and I didn’t want to get hit with a judgement) and he told me about HUD guidelines. I cut and pasted the website below for you. Although it was a tedious process that lasted about a month (and my claim was escalated and I was assigned a HUD investigator to determine why BOA had not returned any of my phone calls or made any contact). However, immediately after the investigator got in touch with BOA they called me. I am currently going through the short-sale process (I got approved). I highly recommend calling the HUD (follow the link). I don’t know why few people know about this websites but its one of the best kept websites/contact information that I have found. They really do take action….


MJ November 20, 2012 at 8:37 pm

My wife just accepted a job out of state so we need to move fast. Never late on my mortgage payments, but we are underwater by about $30-40k, so we would like to pursue a short sale. We have enlisted the help of a real estate agent (just yesterday) who indicates that she has short sale experts at her disposal. She has moved to list the property right away. I have every intention to continue to pay the mortgage until we have a buyer and the bank approves. There is PMI on the loan and it is FHA backed. I feel like I need the assistance of an attorney with expertise regarding short sales and the potential tax impacts, deficiency judgment, etc. Basically advice/guidance through the process and also the aftermath. I feel like I’m at the mercy of the agent otherwise. My biggest concern is getting a 1099 or having the bank try to recover the deficiency and have this all end in financial ruin which is what we’re trying to avoid with the short sale. Any advice as to whether an attorney would be beneficial? Could we potentially receive a tax bill for $30-40k? Could the bank come after our assets, i.e. savings, 401k? Are short sales an option if we are current? We are currently in the state of Ohio.


Shannon O'Brien November 21, 2012 at 12:32 pm

Hi MJ,

In your situation I would definitely hire an attorney. Even if it’s just to look over the contract before it’s sent to the lender to ensure the agent did everything she could to protect you.

Hope it all works out!


Nicole Henderson November 19, 2012 at 6:11 pm

Hello, We bought our house in 2008 for 195k. In late 2009, my husband’s hours were cut dramatically. We have 5 children and bring in only 60% of what we did in 2008. We live in Nevada and the job opportunities here have been sparse. We try to pick up odds and ends all the time and still keep a look out for additional work just to make ends meet. We have a FHA loan and have tried for modifications over the last year and a half and B of A have denied us twice! A few months ago, we decided it was best to do a short sale. Conveniently, 2 weeks after submitting for the short sale, we get a temporary modification approval for $200 less than our mortgage for 6 months. Mind you, we have not paid B of A a dime since May of this year simply because we just could not do it and our daughter had to have surgery. We STILL have not paid anything on the mod approval either. $200 off of our mortgage was not going to help us AT ALL. They have now denied us the short sale saying we can not deny the modification only they can. My question is, if we STILL have not paid them a dime (2 months since approval of mod), what is the next step? They see us as numbers, not what is actually paid out to support a family of 7! Do we try the short sale again, rewrite the hardship letters, put the house up for a buyer and see if things change since the market has changed a little? Do we just walk away? You would thing the bank would rather short sale than foreclose, right? We love the area and would have loved to have different circumstances but the bank has been of no help what so ever. We’ve had to practically sell everything we have just to survive. We are good people and are not trying to screw the bank in any way. HELP!!!


Shannon O'Brien November 20, 2012 at 7:37 pm

Ah, Nicole, this breaks my heart. I live in Nevada as well so I know exactly what you’re talking about.

My first piece of advice to you would be to see an attorney. It doesn’t sound like you have the money for that so, let’s see what else we can do.

Here is what I would do, if I couldn’t afford an attorney. I would call a really, really knowledgeable short sale agent in your area. Have him or her run the comps on your home and get an idea of what it’s worth right now. It may surprise you, or it may disappoint you. Either way, it’s best to know what you’re dealing with.

Then, ask the agent for his or her counsel. If he or she is truly a short sale expert you should get some decent advice. If the bank won’t accept a short sale your best alternative is either bankruptcy (I know, people hate it when I say that!) or foreclosure. They’ll both mess up your credit, but at least with a BK you walk away clean on ALL bills.

Another thing to think about is asking B of A for a deed in lieu of foreclosure. This is assuming you and your lovely large family have somewhere else you can move.

Gosh, Nicole, I wish I could be of more help to you. If you live in the Las Vegas area let me know and I’ll be happy to help you round up the best short sale agent in town.


Beth Hinson December 10, 2012 at 12:50 pm

Keep looking for help. If the person on the other end of the phone doesn’t help, go on to the next person. Bank of America is one of the Banks required to pay out to it’s customers in a settlement, so why not your family?

Good luck!


Rick January 7, 2013 at 8:55 am

If you would be so kind to direct me to the best (most experienced)shortWho is the best (most experienced) short sale agent in Las Vegas, that would be great!


Shannon O'Brien January 8, 2013 at 12:50 pm

Hi Rick,

Two of the top short sale agents here in the valley are also two of the top agents in the U.S. according to Real Trends and the Wall Street Journal:

Valerie Hyams, RE/MAX Advantage and Bob Hamrick, Coldwell Banker Premiere.

Best of luck!


Tish November 19, 2012 at 5:16 pm

I received my shortsale approval letter. However, prior to receiving the letter the Manager of Underwriting refused to encourage me to default on my loan, however, he did inform me that in order for me to receive the letter, I needed to be 31 days late with paying my Mortgage, as provided by FHA guidelines. He then stated as long as I understand those guidelines, he can provide me with the approval letter, which he did. Well at that point, I was never late paying my Mortgage, and the letter did not specify anything regarding the 31 day FHA requirement. Now, the Attorneys office is ready to close prior to my loan being 31 days late, and I am not sure how to proceed because the FHA guideline was provided by Underwriting prior to me receiving the letter. The Attorneys Office stated legally, the Bank cannot hold me to this because this was not included in the letter. How do you think I should proceed?


Shannon O'Brien November 20, 2012 at 7:39 pm

I would take my lawyer’s advice were I you. Can’t go wrong there!

Best of luck to you


Lori October 22, 2012 at 4:46 pm

How do I find out if investors are allowed to purchase Short sales from BoA? They’re saying no, but there’s no documentation saying so.


Shannon O'Brien November 20, 2012 at 7:41 pm


What does your agent say?


Elliot October 15, 2012 at 4:53 pm

My wife and I listed our house for short sale 4 months ago and within 3 weeks received two offers. We stopped paying our mortgage when my wife’s unemployment benefits ran out. Plus our home had lost $100k in equity. We recently were assigned a negotiator (finally!) and I immediately became concerned with the banks request for bank statement. What is considered too much savings? How will having assets impact our ability to qualify? From the research that I’ve done, if we have assets enough to support the existing debt,we are denied. Is there some way to calculate this amount? Sorry for the multitude of questions, but we are just concerned. Thank you.


Shannon O'Brien October 16, 2012 at 9:28 am

Hi Elliot,
Unfortunately you don’t mention in which state you live in and other details necessary to determine how your assets will impact your ability to qualify. If you live in California you should be ok. What type of a short sale are you attempting? If it’s HAFA, you should have no problems as it doesn’t require a seller contribution.

With a traditional short sale, the rule of thumb is that the short sale may be denied, or you may be asked to contribute, if you have “substantial” savings. What is substantial? Good question. One lender claims that it’s more than three times the monthly payments. But lenders vary in their requirements and typically take the legitimacy of your hardship into account.

Sorry I can’t be of more help with this. By the way, where is your real estate agent in all this? You should be taking these questions to your agent and demanding he or she provide answers.

Best of luck to you!


Elliot October 16, 2012 at 1:34 pm

Hi Shannon,

Thanks for the prompt reply. We live in the State of California and have applied for the FHA short sale program. It sounds from what you’ve stated, we should be okay in terms of not having to contribute funds towards closing. Thank you for the information. We’ll follow up with our realtor.



Sonia G September 5, 2012 at 7:28 pm

It’ so hard to know if the Short Sale
Realtor has the knowledge to do what has to be done to help through all
the short sale process. Can you please suggest one?

I live in Coral Springs, FL 33071. I contacted Susan Penn, I found her in the Internet, I haven’t done anything with her yet.
Time is running out and I’m scare to waste my time with the wrong person.

thanks so much!


Shannon O'Brien September 5, 2012 at 10:43 pm

Hi Sonia,

I understand how challenging it is to find the right agent for your short sale. You do need to move quickly, however.

I am not familiar with the agent you mention although her ActiveRain profile mentions that she deals with short sales. Talk to her and talk to Lynn Pineda as well — she is super. Lynn’s number is Office: (954) 464-1100 and her cell number is (954) 464-1100.

Although there are many questions to ask the agents, these are the most important:
How many short sales have you performed in the past year? (Lynn has done about 25).
How many of those transactions were successful?
I have a second loan on the house. How will this be handled if I hire you?
How do I know if I have PMI?
If I do have PMI, will that affect the short sale?
Do you have any direct contacts within my lender’s short sale department?
Even though you may not understand the reasoning behind some of these questions (such as the second mortgage and PMI questions) what you want to look for is an agent that answers them without hesitation — the answers should roll right off their tongues. If not, they aren’t experts.

I hope it works out for you, Sonia. Remember, time is of the essence, so call them right away.


Stuck in Ohio August 31, 2012 at 7:35 pm

Hey Shannon,
13 months ago my 5 year olds father tragically passed away. This past June I decided we needed to go to NY so we can go to family (it is now just her and I in Ohio) I called a realitor to list my house for sale. Due to all of the foreclosures in our neighborhood they could only list my house for $125k and I owe $178k so my realitor said a short sale was my only option. Both my husbands name and my name were on the mortgage until he passed away and I had his name removed. I have been going through the short sale process for a little over 2 months, I had an offer on the house which I accepted the realitor sent on to the bank. I just found out yesterday that my short sale was denied because I had to big of a surplus income. But I had never filed “financial hardship” I filed” personal hardship” due to death of a spouse. So now I can’t sell my house outright, nor can I do a short sale. Is my only option to walk away from the house? Why would the bank rather I walk away from the house when they already have a buyer for the house? I feel like I am now trapped in this house, in this state and I really need to be with my family right now. Do I have any options?


Shannon O'Brien August 31, 2012 at 10:00 pm


I am so sorry to hear about the death of your husband — my heart goes out to you and your daughter.

I’m a little confused by what you are calling “surplus income.” I’m not sure, but it sounds like the bank isn’t entertaining your personal hardship because you can still afford to make the payments on your own.

I’m a little surprised that your agent didn’t caution you that this may happen once he or she saw your financial statement. That said, walking away is not your only option.

Is this “surplus income” enough to pay the difference between the $125k you’ll get from the sale and the $178k that you owe the bank? If not, ask your lender to entertain a deed-in-lieu of foreclosure. Although that process will still muck up your credit, your extenuating circumstances may allow you to buy a home sooner than if you let the home foreclose.

You may also want to think about renting the house until the market recovers. Being a long-distance landlady, however, brings with it a whole new set of challenges.

Talk to your agent or attorney before deciding on anything. Again, I’m so sorry this is happening to you and wish you much luck in New York.


judith blinn August 22, 2012 at 3:03 am

lI am the seller and conditionally accepted an offer as it required I apply for a short sale as it was substantially less than I owe. I applied and have been waiting more than four months for approval. The buyer has not even applied for her FHA loan so we do not know whether she will be approved. The agent says she cannot apply for her FHA loan until I am approved for the short sale. I have been making payments the entire time at a continuing hardship as I had to move due to job loss and death of my spouse. I do not know when whether or if I will be approved for the short sale and even if approved tomorrow will not know whether the buyer will be approved for her FHA loan. Is it true that she cannot even apply until after I receive short sale approval. And if so, how long will it take to process her loan and close? I ask because I have a potential short term tenant for four months. But neither agent nor the buyer wants me to rent as they say this can close in 6-8 weeks. Is this possible? Likely? Or just another false representation. I was told I would get a response to the short sale application in 3-4 weeks. It has now been more than four months and I get no response from BOA.



Stephanie R August 22, 2012 at 3:10 pm

Good morning, Judith! I have forwarded your Short Sale questions to the blog post author, Shannon O’Brien. She will reply to your question here, so please be sure to check back with us shortly. Thank you!


Shannon O'Brien August 22, 2012 at 4:31 pm

Hi Judith,

First, I’m so sorry about the loss of your husband. That, combined with the loss of your job and ensuing financial problems probably make this short sale seem insurmountable, but it isn’t.

It sounds to me that you aren’t being represented by a real estate agent. Is that true? If so, you need to find the best short sale agent in your area and put him or her to work on this mess. Short sales are not DIY projects and not using an expert pretty much dooms you to failure.

That said, I can’t answer your questions without knowing the answers to many more. Was your short sale package complete? If you have an agent, does he or she use Equator? How do you know the FHA buyer can even get a loan? Four months have passed so even if she qualified in the past, she may not qualify now (her credit picture may have changed during this time). Is the home still on the market? Are you getting other offers? A four month tenancy, when you’re under financial pressure, sounds ideal but, again, I don’t have all the details of your situation.

Judith, you should not have all these questions. If you do have an agent, fire him or her and hire a specialist. If you don’t have an agent, get one today. If you need help finding one, let me know what city you are in and I’ll put out some feelers.


Shannon O'Brien August 13, 2012 at 4:22 pm

Hi Charles,

I’m so sorry you’re going through this and I would love to help but there are a lot of unanswered questions here. Are you on your fiancee’s title? Is she on yours? Is there a valid hardship that is preventing you from paying the house payments? Do you have a second on the house? PMI? Who holds your loan?

You don’t mention what part of the country you live in. . .I would suggest that you contact either a real estate attorney or a bona fide short sale expert real estate agent. Let me know if you need help with the latter and I’ll see if I can round up a good one. I’m happy to help.


Charles Crescenzo August 11, 2012 at 11:35 am

HELP!! My finace and I have a 5 year old child and all the expenses that go along with it. I have a second house that I lived in until junior came along. It’s been 3 years now and we can’t afford my house for it is worth 375,000 dollars and I owe 475,000 dollars. We currently live in her house because it’s cheaper and ran out of money to continue paying the mortgage on my house. I would like to short sell my house and repay the remaining balance to keep my excellent credit. I have read all the rules pertaining to short sales and I do not appear to qualify. Please advise. I want to do the right thing and not simply walk away. Thank You for your time.


Stephanie August 13, 2012 at 3:10 pm

Good morning, Charles! I have forwarded your concerns/questions to the blog post author, Shannon O’Brien. She will most likely reply to your comment here and should be in touch shortly. Thanks!


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