As more homeowners have fallen behind on their mortgages, many local markets have been flooded with distressed sale properties—short sales or actual foreclosures—demanding that REALTORS® develop new skills to respond on behalf of their clients and their communities.
Here you'll find more information on short sales and their challenges, the government's efforts to address these challenges, and tools to help you navigate the short sale process.
To check on the status of a particular short sale you should contact the lender. For a Freddie Mac loan, email shortsales@FreddieMac.com.
What is a short sale?
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.
Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses.
A short sale can also be the best option for a homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.
What challenges have short sales presented for REALTORS®?
The rapid increase in the number of short sales, and the short sales process itself present a number of challenges for REALTORS®. Major challenges include:
- Limited experience. Many REALTORS® are new to the short sales process; a difficulty which is compounded by many lenders' lack of sufficient and experienced staff to process short sales. Even if the REALTORS® are experienced, most servicers are under-staffed and still not adequately trained, making negotiating a short sale particularly difficult.
- Absence of a uniform process and application. Until HAFA guidelines were established, both short-sales documents and processes were lender-specific, making it very difficult and time-consuming for REALTORS® to become knowledgeable and efficient in facilitating these transactions.
- Multiple lenders. When more than one lender is involved, the negotiations are much more difficult. Second lien holders often hold up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing.
As a result of these challenges our members have reported difficulties with: unresponsive lenders; lost documents that require multiple submissions, inaccurate or unrealistic home value assessments, and long processing delays, which cause buyers to walk away.
Regulatory Contact(s):Charles Dawson,
What is the fundamental issue?
NAR continues to push the lending industry to improve the process for approving and expediting short sales. In a direct response to REALTOR® concerns, the Treasury Department developed the Home Affordable Foreclosure Avoidance Program (HAFA), to establish uniform procedures, forms, and deadlines for short sales. The development of the HAFA program pushed both Fannie Mae and Freddie Mac, as well as a number of large servicers, to implement standardized processes and procedures to improve the speed and efficiency of short sale transactions.
I am a real estate professional. What does this mean for my business?
Though there have been many improvments, many members still reiterate that short sales continue to be delayed and servicers often hold unrealistic views of current home values. Often time the result is having a potential buyer cancel the contract and the property going into foreclosure. Enormous amounts of time are spent on potential short sales that result in foreclosures. Even if successful, the process usually takes many months and countless hours and often requires re-marketing because buyers lose patience and terminate the contract. Mainting a focus on streamlining short sales will reduce the amount of time it takes to sell the property, improve the likelihood the transaction will close, and reduce the number of foreclosures. This will benefit the lender, the seller, the buyer, the community.
NAR strongly supported the implementation of the HAFA program and continues to call for improvement of other short sales programs to make them feasible. NAR believes lenders should adopt best practices learned from HAFA principles including identifying the required net proceeds, and approvable closing costs, up front to reduce delays in approving the transaction once a sales contract is executed.
The improvements to the short sale process has helped stabilize the housing market by providing additional options for responsible homeowners to avoid foreclosure. In turn, this has allowed homeowners to avoid the foreclosure process and neighborhoods to avoid the blight of vacant foreclosed properties.
Servicers continue to face problems training their front line staffs on existing short sale programs, such as the HAFA program, and understanding the importance of improving efficiency of short sale transactions. NAR continues to meet with the four largest lenders, Fannie Mae, and Freddie Mac to emphasize the importance of making short sales work better. Though many lenders and the GSEs have improved procedures to handle escalated cases, NAR has continued to push for changes to make the short sales process as efficient as regular transactions.
NAR supported the Consumer Financial Protection Bureau's final rule on mortgage servicing that requires servicers to comply with new loss mitigation procedures for loans secured by a borrower’s principal residence. If the servicer receives a complete loss mitigation application more than 37 days before a scheduled foreclosure sale, the servicer must evaluate the borrower within 30 days for all loss mitigation options available, including loan modifications and short sales. A borrower may appeal a denial of a loan modification only if the complete application was received 90 days or more before a scheduled foreclosure. The rule also restricts so-called dual tracking.
No short sale legislation has ben introduced during the 115th Congress. During the 113th Congress (2013-2014), NAR supported H.R. 839 (Rooney, R-FL) and S.361 (Brown, D-OH; Murkowski, R-AK), the "Prompt Notification of Short Sale Act" that required servicers to decide whether to approve a short sale within 30 days of completion of the file. The bill attempted to prod servicers to make the short sales process more efficient by setting standards and penalizing them for inadequate performance.
Conventional Financing and Policy Committee
We've already done the research for you.
Before you search elsewhere, take advantage of the research we've already done for you. Formerly known as Field Guides, References tabs contain links to external articles, titles from the NAR Library eBooks collection, websites, statistics, and other material to provide a comprehensive overview of perspectives on each topic. EBSCO articles (E) are available only to NAR members and require a password.
Short Sales and Foreclosure Resource Certification
Learn more about NAR's latest certification program, core courses, free webinars, FAQs and brochures.
Short Sales and Foreclosure Resource Certification
Short Sales Basics
What is a short sale? The long and short of it, (realtor.com®, May 5, 2016).
Real estate tips: what is a “short sale” and how does it work, (Realty Today, May 5, 2016).
Short sales resources, (REALTOR® Magazine, n.d.).
4 short-sales myths dispelled, (REALTOR® Magazine/Daily Real Estate News, Jan. 14, 2014).
Short Sale Home, (HomePath, n.d.).
Working With Short Sales
Succeeding with short sales clients, (Real Estate Express, Mar. 17, 2016).
5 common errors when buying a short-sale house, (Bankrate, Jan. 29, 2016).
Why short sales are still some of the best deals around, (Credit.com, Jan. 14, 2015).
The short list: Bert Gor’s tips for working effectively with short sales, (Chicago Agent Magazine, May 5, 2014).
How to successfully complete a short sale—mystery solved!, (Rochester’s Real Estate Blog, Mar. 20, 2014).
How to prepare for a short sale, (REALTOR® Magazine, n.d.).
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
All About Short Selling (Kindle OverDrive Read, EPUB eBook, PDF eBook)
Best New Short Sale Solutions, Top 10 Tips (Kindle, OverDrive Read, EPUB eBook, PDF eBook)
The All-New Real Estate Foreclosure, Short-Selling, Underwater, Property Auction, Positive Cash Flow Book (Kindle, OverDrive Read, EPUB eBook, PDF eBook)
Cashing in on Pre-foreclosures and Short Sales (Kindle, OverDrive Read, EPUB eBook, PDF eBook)
How to Use a Short Sale to Stop Home Foreclosure and Protect Your Finances (Kindle, OverDrive Read, EPUB eBook, PDF eBook)
Make Money in Short-sale Foreclosures (Kindle, PDF eBook)
Books, Videos, Research Reports & More
The resources below are available for loan through Information Services. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Information Services at 800-874-6500 for assistance.
The REALTOR® and the home owner's guide to short sales: step by step, (CreateSpace, 2009). HG 4521 K27
Short-Sale Pre-Foreclosure Investing, (Hoboken, NJ: Wiley, 2008). HG 4521 B43
The Art of the Short Sale, (Minneapolis, MN: Mill City Press, 2008). HG 4521 C49
Foreclosure investing for dummies, (Hoboken, NJ: Wiley, 2007). HG 4521 R54
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The inclusion of links on this page does not imply endorsement by the National Association of REALTORS®. NAR makes no representations about whether the content of any external sites which may be linked in this page complies with state or federal laws or regulations or with applicable NAR policies. These links are provided for your convenience only and you rely on them at your own risk.