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Short Sales & Foreclosures

As more homeowners exit forbearance, some will fall behind on their mortgages and many local markets will see a rise in distressed sale properties. The flow of distressed sales is expected to be a fraction of those during the Great Recession, but nonetheless, REALTORS® will need to 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. In the past, second lien holders held up the transaction to exert the largest possible payment, in exchange for releasing their lien, even though in foreclosure they will get nothing. This practice is less common today.

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 and harm distressed sellers.

Line drawing of a laptop with a teacher and students on the screen

Education

Take courses on short sales and foreclosures from NAR and its affiliates.

Latest on this topic

Hoping to Buy a Foreclosure? Here's Why That Will Be Difficult in 2024 –The Motley Fool
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Advocacy

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 Policy:

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 helped stabilize the housing market during the Great Recession by providing additional options for responsible homeowners to avoid foreclosure. In turn, this allowed homeowners to avoid the foreclosure process and neighborhoods to avoid the blight of vacant foreclosed properties.

Legislative/Regulatory Status/Outlook

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 been introduced recently.

NAR Committee:

Conventional Financing and Policy Committee

Current Legislation/Regulation

CFPB Mortgage Servicing Rule

In-Depth

Letters to Congress - Foreclosures

Letters to Congress - Short Sales

Congressional testimonies - Foreclosures

Congressional testimonies - Short Sales

Letters to federal agencies - Foreclosures

Letters to federal agencies - Short Sales

Issue Summary - Short Sales

NAR Federal Issues Tracker

Legislative Contact(s):

Ken Fears
kfears@nar.realtor
202-383-1066

Matt Emery
MEmery@nar.realtor
202-383-1212

Regulatory Contact(s):

Ken Fears
kfears@nar.realtor
202-383-1066

Matt Emery
MEmery@nar.realtor
202-383-1212

References

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.

Short Sales and Foreclosure ​Resource Certification

Short Sales and Foreclosure Resource Certification

Learn more about NAR's latest certification program, core courses, free webinars, FAQs and brochures.

Short Sale​s Basics

What is a Short Sale? (Bankrate, Jan. 16, 2024)

“A short sale is when a mortgage lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner. The lender forgives the remaining balance of the loan.”

5 Things You Probably Didn’t Know About “Short Sales” in Real Estate (Apartment Therapy, Dec. 1, 2023)

While a short sale could provide financial relief, it could impact your borrowing power. A short sale can hurt your credit. Much depends on how your lender reports the short sale. It will show up on your credit report as “settled,” or it might say the amount legally paid in full. The impact could be a few points or as bad as a foreclosure. 

What Is a Short Sale on a House? Process, Alternatives, and Mistakes to Avoid (Investopedia, Sep. 8, 2023)

A distressed homeowner generally gets to stay in the home during the short sale process.

A homeowner who has gone through a short sale may, with certain restrictions, be eligible to purchase another home immediately.

8 Things to Know About Short Sales in Real Estate (Heritage Home Loans, May 23, 2023)

Advantages for Sellers

  • Avoiding Foreclosure: As mentioned earlier, a short sale can help sellers avoid the damaging consequences of foreclosure.
  • Reduced Damage to Credit: Although a short sale still negatively impacts credit scores, it’s generally less severe than a foreclosure, allowing sellers to recover more quickly.
  • Faster Resolution: A short sale can provide a faster resolution for sellers facing financial hardship, allowing them to move on and begin rebuilding their lives.

Buying a Short Sale Property FAQ (Freddie Mac)

“Homeowners pursue a short sale when they can no longer pay the mortgage, need to move from the property and want to avoid a foreclosure. With a short sale, the impact on the homeowner's credit record might not be as bad as a foreclosure in some circumstances.”

Short Sale Home (HomePath)

“The HomePath Short Sale Portal is a Fannie Mae resource for listing agents who are working with clients who are considering or pursuing a short sale on a property where Fannie Mae is the first lien holder.”

Working With Short Sales

What Is a Short Sale, and Should You Buy a Home Through One? (Credible, Apr. 5, 2024)

“For a prospective homebuyer, short sales can present an opportunity to buy a home for less than you’d pay in a traditional sale. You might also face less competition because buyers might be unwilling to risk the pitfalls of a short sale home.”

How to Buy a Short Sale Home (Refi, Jan. 4, 2024)

Make sure you have a good idea of the actual value of the property – the bank holding the current mortgage will want to recover as much value as it can, so it’s up to you to determine whether you’re getting a good deal or not. A real estate agent can help you by looking at other homes that have recently sold in the area and look into how much the seller owes to the lender.

Can Multiple Offers be Submitted on a Short Sale? (Wellington Home Team, Aug. 19, 2023)

While multiple offers can be presented to a short sale seller they cannot accept multiple offers nor can they submit multiple signed/unsigned offers to their lienholder. Not only will that muddy the waters it will delay the entire process.

So the answer is no, multiple offers cannot be submitted on a short sale. After all, the seller only has one home to sell.

How to Prepare for a Short Sale (REALTOR® Magazine)

“Contact your lender to see if it has programs to help you stay in your home. You may be able to refinance your loan at a lower interest rate, switch to a different payment plan to help you get caught up, or secure a temporary forbearance period.”

Foreclosure Basics

What is a Foreclosure Property? (The Balance, Feb. 9, 2024)

“Foreclosure is the process of a lender seizing and selling a property when the owner fails to make mortgage payments as agreed. The sale enables the lender to recover at least some of the mortgage balance that remains.”

What is a Foreclosure? How It Works and How to Avoid It (Bankrate, Feb. 9, 2024)

The types of foreclosures that can occur depend on the state you live in and your mortgage terms. Some foreclosures involve legal action (judicial foreclosures), and others do not (non-judicial foreclosures).

How Long Does Foreclosure Take? (Credit.com, Feb. 9, 2024)

A nonjudicial mortgage foreclosure can take about 120 days, or four months, to complete. Judicial foreclosures vary depending on your state. In California, this process can take two to three years.

Foreclosure Defined: What It Is, How to Avoid It and What It Means for You (Rocket Mortgage, Feb. 2, 2024)

A lender contacts a homeowner to inform them of their delinquency and notify them about the possibility of foreclosure. The lender and homeowner explore options to keep the loan current. If the homeowner can’t bring their mortgage up to date, the lender may proceed with foreclosure. Depending on your state’s laws, your lender may file with a court to initiate foreclosure.

What is a Foreclosure? How Does Foreclosure Work? (Bankrate, Aug. 10, 2022)

There are two main ways your home can be foreclosed on: A judicial foreclosure, meaning the lender needs to get a court order. A nonjudicial foreclosure, depending on the state where the property is located.

Working with Foreclosures

How to Buy a Foreclosed Home (U.S. News & World Report, Apr. 10. 2024)

When a property cannot sell at auction, interested buyers will work directly with the bank. If you're buying a bank-owned foreclosure, applying for a loan from the same bank may simplify matters, assuming you can get a competitive interest rate. Fair warning: Some banks will not want to finance foreclosures or will require large down payments because they can be risky investments.

Buying a Foreclosed Home: Pros, Cons and a Step-By-Step Guide (Rocket Mortgage, Mar. 1, 2024)

“A qualified foreclosure agent can help you search for foreclosures, navigate your state’s REO buying process, negotiate your price, order an inspection and make an offer.”

Can I Sell My Home if It Is in Foreclosure? Why Time Is of the Essence (HomeLight, Jan. 25, 2024)

The advantages to selling pre-foreclosure include:

  • Time to have small repairs done, the home cleaned, and staged to get top dollar
  • The ability to work with an agent and get top dollar
  • Avoiding a foreclosure hitting your credit report and limiting your ability to buy again
  • Move on your timeline, not a bank’s, depending on negotiations with the buyer

Avoid Foreclosure (USA.gov, Dec. 15, 2023)

If you know that you are going to have trouble paying your mortgage:

  • Contact your lender immediately and let them know you are having financial difficulties. This allows your lender time to work with you to create a plan.
  • Do not stop paying your bills.
  • Do not wait until you cannot make payments before you act.

eBooks & Other Resources

eBooks.realtor.org

The following eBooks and digital audiobooks are available to NAR members:

All About Short Selling (eBook)

The All-New Real Estate Foreclosure, Short-Selling, Underwater, Property Auction, Positive Cash Flow Book (eBook)

Best New Short Sale Solutions, Top 10 Tips (eBook)

­Bidding to Buy A Step-by-Step Guide to Investing in Real Estate Foreclosures (eBook)

Buying Real Estate Foreclosures (eBook)

Cashing in on Pre-foreclosures and Short Sales (eBook)

The Complete Guide to Preventing Foreclosure on Your Home (eBook)

Fire Sale How to Buy US Foreclosures (eBook)

Foreclosure Investing For Dummies (eBook, Audiobook)

How to Make Money on Foreclosures (eBook)

How to Use a Short Sale to Stop Home Foreclosure and Protect Your Finances (eBook)

Make Money in Short-Sale Foreclosures (eBook)

The Realtor & Investor's Complete Step by Step Guide to Mastering Foreclosures by State (Insider Secrets to Finding, Listing, Selling AND Profiting from Foreclosure Properties in ALL 50 States!) (eBook)

Stop Foreclosure Now (eBook)

Tips, Tricks, Foreclosures, and Flips of a Millionaire Real Estate Investor (eBook)

Books, Videos, Research Reports & More

As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.

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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