In the first two parts of this series of articles, we discussed the short sale programs offered by HAFA (Home Affordable Foreclosure Alternatives), Fannie Mae (Federal National Mortgage Association; FNMA) and Freddie Mac (Federal Home Loan Mortgage Corp; FHLMC).

If the borrower’s mortgage has been insured by the Federal Housing Administration (FHA), however, the short sale must satisfy the requirements of the Department of Housing and Urban Development (HUD) guidelines, which include:

1. The premises consist of a one- to four-family residence.

2. The premises must be owner-occupied or initially, owner-occupied when purchased and used as rental property for less than eighteen months (variances for properties which were initially owner-occupied when purchased and used as rental property for more than eighteen months may be obtained, but the process will be a lengthy one).

3. The borrower is delinquent in making mortgage payments.

4. The borrower is suffering a financial hardship.

5. The borrower is not eligible for a loan modification.

Note that although HUD claims do not encourage borrowers to stop paying their mortgages, if they are not in arrears, the FHA short sale will not be approved!

Furthermore, to avoid the enormous delay that can result from FHA exploring the alternative resolution of a loan modification, it is highly recommended for the borrower to apply for a loan modification and be rejected, prior to submitting the short sale application.


While lenders and servicers are free to approve short sales on their own terms, they are not paid the incentives to do so that are offered under the HAFA, FHA, Freddie Mac, and Fannie Mae programs, and are, therefore, far less likely to do so.

Accordingly, when seeking a short sale, the first step is to identify what programs are available. If your mortgage is conventional, you must satisfy the HAFA criteria while if it is a Fannie Mae, Freddie Mac or FHA mortgage you must satisfy the corresponding Fannie Mae, Freddie Mac or FHA short sale criteria. Regardless of the program, however, all short sale programs will require an appraisal, financial statements, and will limit what can be paid from proceeds. Regardless of the program, the “short” in a short sale will refer to the proceeds paid to the lender; not the time it takes to obtain the lender’s approval!

If you have any questions or comments, please contact me at

Peter Roach

Peter T. Roach & Associates, P.C.