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Effective October 1, 2013 U.S. Department of Housing and Urban Development (HUD) has announced the following changes to their Federal Housing Administration (FHA) Short Sale requirements:

• Eligibility Requirements: To successfully complete a short sale under the FHA short sale program, the borrowers must meet the following requirements:
  • They cannot list the property with or sell it to anyone with whom they are related or have a close personal or business relationship.  In legal terms, it must be an "arm's-length" transaction.  Any knowing violation of the arm's-length requirement may be a violation of federal law.
  • Your mortgage must be in default, on the date the short sale transaction closes.
  • Before closing, any additional liens against the property must be released. A lien holder who demands a payment to release its lien must submit a written statement, and an agreement to release the lien if that amount is paid.
• Financial Hardship Validation Requirement: For a standard preforeclosure short sale sale, servicers must use a Deficit Income Test (DIT) to determine a homeowner's financial hardship.  The IRS Collection Financial Standards will be used to verify homeowners expenses not reflected in their credit report.  Only owner-occupied properties are eligible for the standard preforeclosure sale.
• New Streamlined Short Sale Option: Homeowners eligible for a streamlined short sale may not be required to submit financial information or have a financial hardship.  Principal residences, second homes, investment properties and service members who have received Permanent Change of Station (PCS) Orders are potentially eligible.
• Property Appraisal: The appraisal of your property should be completed within approximately ten business days.  After the appraisal, the short sale file will be updated and prepared for review.  In some cases, approval may be required by the investor and/or FHA, which may take more time.
• Cash Contribution: As a new condition, you might be required to make a final payment (sometimes called a cash contribution) before or at closing.  This payment will reduce the deficiency balance.
• Borrower's Incentive Compensation: If you are an owner occupant, acting in good faith, and successfully selling your property, you may be eligible for an incentive of up to $3,000.  If you are required to make cash contribution, you are not eligible for this incentive.
• Short Sale Contract Addendum:
  • The revised FHA short sale addendum must be signed and dated by all parties.  Under this addendum, all parties agree that the subject property must be sold through an arm's-length transaction.  An arm's-length transaction is defined as a short sale between two unrelated parties that is characterized by a selling price and other conditions that would prevail in an open market environment.  Also, no hidden terms or special understandings can exist between any of the parties (e.g., buyer, seller, appraiser, sales agent, closing agent, and mortgagee) involved in the transaction.
• Action Required: Review the Short Sale FHA Program guides located on the Agent Resource Center:
  • FHA Preforeclosure Sale FAQs
  • Tips to Efficient FHA Preforeclosure Sales

To review additional information about FHA requirements, please log on to www.hud.gov. Questions can be directed to Short Sale Customer/Agent care at 1.866.880.1232.

According to the Distressed Property Institute, more than 80 percent of distressed homeowners who go into foreclosure have never contacted their lender or a real estate professional for help. That’s a staggering number when help and relief are available.



Without fail, our phone rings off the hook near the end of every month from desperate homeowners looking for help. After checking the local foreclosure lists, we often find that the house is already scheduled for foreclosure the following week. At that point, it’s nearly impossible to get a Short Sale in place to stop it.

An important thing to understand about Short Sales is that the process is anything but “short.” The only thing “short” about a Short Sale is the payoff to the lender. The sooner the homeowner contacts someone for help, the more time is available to work the Short Sales process.

We encourage homeowners across the United States to get educated on the options available should they become financially distressed. Short Sales are a great tool, providing relief to all parties.

Just remember to choose a REALTOR® with a proven Short Sale track record to negotiate on your behalf. Making the right choice can mean the world of difference to your financial future.



Based on "Avoiding Foreclosure - The Field Guide to Short Sales" © 2010 - Tom Branch and Gina Branch