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.
EducationTake courses on short sales and foreclosures from NAR and its affiliates.
Regulatory Contact(s):Ken Fears
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 improvements, 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. Maintaining 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 was 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
NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require the member's nar.realtor login.
Impact of COVID-19 on Short Sales & Foreclosures
Gov’t Agencies Extend Foreclosure, Eviction Moratoriums Again (REALTOR® Magazine Daily News, Jun. 18, 2020)
Zombie Foreclosures Have Dropped Slightly Despite COVID-19 (REALTOR® Magazine Daily News, May 28, 2020)
FHFA Chief: Coronavirus-Related Delinquencies Could Outnumber Subprime (National Mortgage News, Apr. 2, 2020) E
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
How to Buy or Sell a Home in a Short Sale (Newsday, Sep. 8, 2020)
What Is a Short Sale? (The Balance, Jun. 30, 2020)
Before Buying a Short Sale Home (The Balance, May 13, 2020)
The Complete Short Sale Process from Beginning to End (The Balance, May 8, 2020)
Short Sales: What Buyers Need to Know (Realty Biz News, Mar. 30, 2020)
Buying a Short Sale Property (Freddie Mac, 2020)
5 Things to Know Before Buying a Short Sale (Forbes, Sep. 16, 2019)
What Is a Short Sale? The Benefits for Buyers and Sellers (realtor.com®, Jun. 13, 2019)
Short Sales Resources (REALTOR® Magazine)
Short Sale Home (HomePath)
Working With Short Sales
Where Can You Find Short Sale Homes? A Finder’s Guide for Buyers (HomeLight, Jun. 30, 2020)
Before Buying a Short Sale Home (The Balance, May 13, 2020)
Preparing Your Client for a Short Sale Purchase (Quicken Loans Mortgage Services, Sep. 26, 2019)
What Does a Short Sale Mean for the Buyer? (Mashvisor, Sep. 15, 2019)
Can I Sell My Home If I'm Behind on My Mortgage? (realtor.com®, Apr. 4, 2019)
Buying a Short-Sale House: A Guide to the Process (Bankrate, Mar. 27, 2019)
How to Prepare for a Short Sale (REALTOR® Magazine)
Is a Foreclosure Wave on the Horizon? (HousingWire, Jul. 10, 2020)
What Makes Buying a Foreclosed Property Risky? (Millionacres, Jul. 3, 2020)
REO Properties: How to Find and Buy Bank-Owned Homes (NerdWallet, Jun. 9, 2020)
Buying a Foreclosed Home (Investopedia, Jun. 2, 2020)
[PULSE] Does the Mortgage Industry View Foreclosure as a Last Resort? (HousingWire, May 28, 2020)
Foreclosure Rates Hit a Generational Low Before Coronavirus Struck (National Mortgage News, Apr. 14, 2020)
Buying a Property at Foreclosure Auction (Millionacres, Apr. 9, 2020)
Cheap, Foreclosed Homes are Hard to Find. Here’s Where to Look and How to Buy One (The Mortgage Reports, Dec. 2, 2019)
The Surprising Ways Foreclosures Make Housing-Market Downturns Even Worse (MarketWatch, Sep. 10, 2019)
The Secrets of Buying Foreclosed Properties (Forbes, Jun. 10, 2019)
What's The Difference Between A Short Sale And A Foreclosure? (Forbes, Apr. 10, 2019)
Working with Foreclosures
Successful Foreclosure Investing Strategies (Investopedia, Jun. 29, 2020)
Most Borrowers in Forbearance Have Equity (REALTOR® Magazine Daily News, Jun. 9, 2020)
Best Cities for Foreclosure Investing in 2020 (AZ Big Media, Jan. 2, 2020)
Buying a Foreclosure? 4 Reasons Why You Probably Still Need a Buyer's Agent (realtor.com®, Dec. 31, 2019)
Who Pays Closing Costs When a House in Foreclosure Is Purchased? (RISMedia, Oct. 28, 2019)
The Secret to Buying a Foreclosure that isn't a Dud (realtor.com®, Oct. 16, 2019)
Buying a Foreclosed Home: How a Foreclosure Sale Works (realtor.com®, Feb. 21, 2019)
7 Smart Moves for Buying a Foreclosure (interest.com, Jan. 23, 2019)
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
All About Short Selling (Kindle, eBook)
Best New Short Sale Solutions, Top 10 Tips (Kindle, eBook)
Buying Real Estate Foreclosures (Kindle, eBook)
Cashing in on Pre-foreclosures and Short Sales (Kindle, eBook)
The Complete Guide to Preventing Foreclosure on Your Home (Kindle, eBook)
Fire Sale How to Buy US Foreclosures (Kindle, eBook)
Stop Foreclosure Now (eBook)
Books, Videos, Research Reports & More
The resources below are available for loan through Member Support. 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 Member Support at 800-874-6500 for assistance.
Short Sale Secrets Exposed: What the Banks Don't Want You to Know (Xlibris Corp., 2012) HG4521 .G93
Avoiding Foreclosure: The Field guide to Short Sales (Plano, TX: Realty Revolution, 2010) HG 4521 B73f
The REALTOR® and The Home Owner's Guide to Short Sales: Step by Step (CreateSpace, 2009) HG 4521 K27
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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