January 16, 2018

fha short sale process

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. 

deficiency judgment

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. 

All customary real estate closing costs are paid out of proceeds, making this a no cost solution for most (though not all) homeowners.

HUD partial claims (usually resulting from prior loan modifications or forbearances) are also settled in the FHA PFS (short sale) process.

what is a partial claim?
There are two types of FHA PFS programs. One for owner occupants and another for those who no longer live in the home:

Owner occupant homeowners must:

  • Document a financial hardship associated with keeping the home
  •  Be evaluated for other workout options such as loan modification

Non-owner occupants can only qualify for the FHA streamline program, which requires they:

  • Are at lest 90 days+ in default
  • Have a credit score below 620

Assuming the homeowner qualifies into the program, their lender will order an appraisal of the home, and then issue an ATP (Approval To Participate) in the PFS program.

short sale success stories

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.

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.

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 September 13, 2022 by Minna Reid

About the author 

Minna Reid

Minna Reid is The Broker - Owner of Reid Real Estate Group. Reid Real Estate Group is a full-service Connecticut residential real estate brokerage, specializing in helping homeowners with legal and financial challenges including short sales, probate sales and tax lien complications.

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