FHA short sales explained!
If you have an FHA mortgage your loan is insured by HUD. HUD has their own short sale program known as the FHA PFS (Pre-Foreclosure Sale) program.
The FHA PFS Program was originally introduced in the 1990’s to help homeowners in default with FHA mortgages avoid foreclosure and free them of their mortgage obligation, when a sale of the property would not produce adequate proceeds to pay off the loan.
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There have been many minor changes to the program over the last 30 years but the basic ideas have not changed. FHA provides full debt forgiveness for those who qualify into the PFS program and participate in good faith whether or not they successfully sell their home.
There are two types of FHA PFS programs. The Standard PFS is for owner occupants and non-owner occupants, and the other Streamlined PFS is for Servicemembers:
A Standard PFS Option is available for Owner-Occupant and Non-Occupant Borrowers and does not require verification of hardship.
Standard PFS Standards:
- The Borrower indicates a Financial Hardship affecting their ability to sustain the Mortgage.
- The Borrower must be 61 Days or more Delinquent on the FHA insured Mortgage as of the date of the Mortgagee’s approval.
- The Borrower must have exhausted or been deemed ineligible for all permanent Loss Mitigation Home Retention Options.
A Streamlined PFS for Servicemembers may be offered to servicemembers with PCS Orders.
Streamlined PFS for Servicemembers with PCS Orders Standards:
- The servicemember has PCS Orders to relocate to a duty station at least 50 miles away from their existing residence and provides the Mortgagee with a copy of such orders.
- The servicemember submits an affidavit certifying that the Property securing the FHA-insured Mortgage is or was their Principal Residence when the PCS orders were issued, and no new permanent housing has been or will be obtained as a result of the orders.
- On the date the PFS closing occurs, the Mortgagee must ensure that the Mortgage is in Default status (minimum 31 Days Delinquent).
The Borrower will be required to:
- Maintain the property in “ready to show” condition, make basic property repairs,and perform all normal property maintenance activities (e.g., interior cleaning, lawn maintenance, etc.).
- The Borrower must report all damage and/or repair expensesresulting from fire, flood, or other natural causes immediately to the insurance company and Mortgagee.
Assuming the homeowner qualifies into the FHA short sale program, their lender will order an appraisal of the home, and then issue an ATP (Approval To Participate) in the PFS program.
The ATP is valid for 120 days, during which a sale meeting the terms of the letter will be approved. During this time any foreclosure activity will be postponed so that the owner can proceed to sell the property. Should the home not sell over the 120 day period, the lender may offer the borrower a deed in lieu of foreclosure (if the borrower qualifies), or extend the ATP.
Once a sale meeting the terms is approved, an approval letter naming the buyer will be produced and the sale can close as any other, with qualifying owner occupants even receiving $3,000 relocation assistance at closing.
FIND OUT IF YOU QUALIFY FOR AN FHA SHORT SALE TODAY!
When it comes to short sales, Minna is an expert. We had no idea that finding a buyer would be the "easy" part. Getting the bank's approval for the sale was a challenge. Our bank constantly made mistakes, even denying us at one point. The whole process was routine for Minna and she reassured us that we would work through the hiccups and eventually get approved. And she was right. What a relief! We hired Minna based on all of the positive feedback we found online and are glad we did. She's smart, responsive, knowledgeable and shows an overall level of professionalism that puts her in a different league than the rest. She regularly exceeded our expectations and we would recommend her to anyone looking to sell their home. ~D.S.
Last Updated on February 2, 2026 by Minna Reid
How to get my hud partial claim forgiven?
No. HUD partial claims cannot be forgiven.
Does a HUD short sale have to be posted on the MLS for any period of time?
If a home is never posted on the MLS, how does HUD ensure they are receiving fair market value?
Yes FHA short sales must be listed for a minimum of 15 days before contract execution. The short selling lender also has an appraisal of the property to determine its market value.