Fact sheet: What is a short sale? Helping borrowers avoid foreclosure
Borrowers who can no longer afford to stay in their home may consider a short sale to avoid foreclosure.
A short sale is the sale of the home for less than the balance remaining on the mortgage. In a short sale, a borrower can sell the home and pay off a portion of the mortgage balance with the proceeds. To maximize the sales proceeds, the accepted home offer should be as close to Fair Market Value as possible. Depending on the situation, the borrower may be required to make a financial contribution toward the balance. However, once the short sale is complete, the borrower is relieved of responsibility for paying any remaining balance—called a “deficiency waiver.” There may be tax consequences associated with the remaining debt forgiven, therefore borrowers should consult a tax professional for additional guidance.
Benefits of a Short Sale
Help the borrower understand the benefits of a short sale, which include
- The elimination of the remaining mortgage debt
- Potential relocation assistance – up to $3,000 (owner-occupied properties)
- Credit repair begins sooner than if a foreclosure is completed The borrower may be eligible for another Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if they went through foreclosure (up to 7 years).
Helping a borrower prepare for a short sale
In order to help a borrower prepare for a short sale, follow these steps:
- Determine if a Borrower Response Package (BRP) is required, or if the borrower is eligible for streamlined documentation.
- Advise the borrower to find a licensed real estate agent
- Work with the borrower to ensure the borrower’s real estate agent submits a List Price Guidance Request on HomePath for Short Sales. The agent should also submit purchase offers here.
- Oversee the sale of the mortgaged property, including
- ensuring that the closing is in compliance with terms of the Fannie Mae approved offer terms
- ensuring proper execution of the Short Sale Affidavit (Form 191)
- remitting funds to Fannie Mae
- updating investor reporting
To submit a short sale case in Servicing Management Default Underwriter™ (SMDU™) refer to the “Create Liquidation Cases” section in the SMDU user guide.