General Requirements When Processing a Fannie Mae Short Sale

The following table provides some of the servicer’s responsibilities in connection with processing a Fannie Mae short sale.

The servicer must...

Evaluate the borrower’s eligibility and cash contribution requirements, if any, based on the status of the mortgage loan at the time of the respective evaluation.

Advise the borrower of the advantages and disadvantages of agreeing to a short sale.

Adhere to the time frames for evaluating the short sale and closing the short sale transaction.

Oversee the sale of the mortgaged property by communicating with the listing agent to explain the requirements related to the short sale and refer the agent to HomePath for Short Sales to register the short sale offer, as applicable.

Review each sales contract in detail to verify that the terms comply with this Guide.

Obtain a property valuation if there’s reason to believe the borrower meets the eligibility requirements and the borrower expresses an interest in a short sale.

Review the settlement statement prior to the short sale closing for proper transfer of title.

Work with the title company to resolve any issues that may delay the closing, including assisting in subordinate lien releases.

Provide instructions to the title company regarding closing of the transaction in compliance with this Guide.

Ensure that the borrower has waived reimbursement of any escrow, buydown funds, or prepaid items and assigned any insurance proceeds to Fannie Mae, if applicable.

Ensure the sales proceeds are received on a timely basis.

Report short sales to Fannie Mae. See D2-4-02, Reporting a Workout Option to Fannie Mae and the Investor Reporting Manual.

Appropriately manage liquidation workout options that involve the borrower’s relinquishing ownership of the property to ensure that the borrower’s rights are appropriately protected.

Provide evidence of the borrower’s indication of intent to pursue a short sale to Fannie Mae upon request.

If the servicer is responding to an unsolicited short sale request from a borrower, it is authorized to proceed directly with evaluating the borrower for a Fannie Mae short sale without first conducting an evaluation for a home retention workout option. See D2-2-05, Receiving a Borrower Response Package for information on evaluating the borrower for workout options.

The servicer must follow the procedures in Requesting Reimbursement for Expenses Associated with Workout Options in F-1-05, Expense Reimbursement for requesting reimbursement of allowable fees.

Communicating with a Borrower Regarding a Fannie Mae Short Sale

The following table provides the servicer’s responsibilities when communicating, either verbally or in writing, about a short sale with the borrower.

The servicer must advise the borrower of the following...

Listing the property for sale may not delay the initiation of foreclosure proceedings, in the event that the foreclosure process has not yet started.

He or she must allow the vendor(s) timely and sufficient access to the property for the purpose of obtaining the valuation.

He or she will remain responsible for maintenance of the property until it is sold and the settlement has occurred. In the event the borrower cannot maintain the property and the property is vacant or abandoned on a delinquent mortgage loan, the servicer must maintain the property in accordance with the Property Preservation Matrix and Reference Guide.

If the sales proceeds are not sufficient to satisfy the mortgage loan debt, the mortgage loan holder may require him or her to contribute funds to reduce its loss. See Evaluating a Borrower’s Ability to Make a Cash Contribution for additional information on evaluating a borrower’s ability to make a cash contribution.

There may be possible tax consequences if any portion of the outstanding debt is forgiven, and refer the borrower to IRS Publication 544, Sales and Other Dispositions of Assets, particularly the section captioned “Foreclosure, Repossession, or Abandonment.”

He or she must execute all documents that are necessary to sell the property, even though the documents will indicate that the sales proceeds must be paid to the mortgage holder.

All sales contracts that will not fully satisfy the outstanding debt must include a contingency clause making the sale of the property “contingent on the mortgage holder’s and the mortgage insurer’s, if applicable, agreement to the sale.”

The following cancellation clause must be included in the sales contract:

“The seller’s obligation to perform on this contact is subject to the rights of the mortgage insurer (if any) and the mortgage holder relating to the conveyance of the property.”

Evaluating a Borrower to Determine Eligibility for a Fannie Mae Short Sale

The following table provides the requirements for evaluating the borrower to determine eligibility for a Fannie Mae short sale based on the delinquency status of the mortgage loan at the time of the evaluation.

If the mortgage loan delinquency status at the time of evaluation is... Then the servicer must evaluate the borrower for a Fannie Mae short sale...
current or less than 90 days delinquent based on a complete BRP (see D2-2-05, Receiving a Borrower Response Package).

Note: If the mortgage loan is current or less than 60 days delinquent, the servicer must determine that the borrower’s monthly payment is in imminent default in accordance with Evaluating a Borrower for Imminent Default for Fannie Mae Short Sale or Fannie Mae Mortgage Release Eligibility in D2-1-01, Determining if the Borrower’s Mortgage Payment is in Imminent Default.

between 90 days and 18 months delinquent

based on a complete BRP, unless one of the following conditions applies, in which case the servicer must evaluate the borrower for a Fannie Mae Short Sale without received a complete BRP:

  • the borrower failed a Fannie Mae Flex Modification Trial Period Plan within the previous 12 months (see D2-3.2-09, Fannie Mae Flex Modification);

  • the borrower received a Fannie Mae Flex Modification and become 60 days or more delinquent within the first 12 months of the effective date of the mortgage loan modification without reinstating;

  • the borrower completed three or more mortgage loan modifications; or

  • the mortgage loan is not secured by an investment property, as identified at origination, and the borrower’s classic FICO credit score is less than or equal to 620.

Note: The FICO credit score must be no more than 90 days old as of the date of evaluation. If the servicer obtains multiple credit scores for a single borrower, it must select a representative credit score using the lower of two or the middle of three credit scores. If there are multiple borrowers, the servicer must determine the representative score for each borrower and use the lowest representative score as the credit score for the evaluation.

greater than 18 months delinquent

without receiving a complete BRP.

Note:Fannie Mae also will agree to short sales for FHA, VA, or RD mortgage loans if they comply with all of the insurer’s or guarantor’s guidelines and do not result in a loss to Fannie Mae.

If the borrower’s debt has been discharged pursuant to Chapter 7 of the U.S. bankruptcy code, the servicer must evaluate the borrower for a Fannie Mae short sale without receiving a complete BRP regardless of the delinquency status of the mortgage loan at the time of evaluation. The servicer must obtain proof that the mortgage loan was included in the borrower’s Chapter 7 bankruptcy filing, such as notification from the court or a copy of the order of discharge showing the mortgage loan as discharged.

If the servicer determines the borrower is eligible for a Fannie Mae short sale or if the borrower has non-retirement cash reserves greater than $50,000, the servicer must follow the procedures in Requesting Approval for a Non-Delegated Short Sale Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions Systemfor requesting Fannie Mae’s approval.

If the servicer evaluated the borrower without receiving a complete BRP and the borrower fully reinstated the mortgage loan after the initial short sale evaluation, the borrower is no longer eligible for a short sale based on the initial eligibility evaluation. However, the servicer is not required to re-evaluate the borrower to determine eligibility upon receipt of a purchase offer if he or she was approved without a purchase offer and does not fully reinstate the mortgage loan.

Evaluating a Borrower’s Ability to Make a Cash Contribution

The servicer must not evaluate the borrower for a cash contribution if

  • prohibited by applicable law;

  • the servicer evaluated the borrower for a short sale without receiving a complete BRP in accordance with Evaluating a Borrower to Determine Eligibility for a Fannie Mae Short Sale; or

  • he or she is a servicemember with PCS orders relocating him or her greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan was or currently is the servicemember’s principal residence.

In all other instances, the servicer must evaluate the borrower for a cash contribution and request a cash contribution, if

  • the borrower’s non-retirement cash reserves, as stated on the Mortgage Assistance Application (Form 710), are in excess of $10,000; or

    Note: The servicer must verbally verify the assets stated on Form 710 and obtain documentation to reconcile any inconsistencies.

  • the borrower’s housing expense-to-income ratio is less than or equal to 40% as calculated in accordance with Calculating the Borrower’s Housing Expense-to-Income Ratio in F-1-16, Processing a Fannie Mae Short Sale .

The servicer must initially request a cash contribution of the greater of the following, rounded to the nearest $100 and not to exceed the amount of the deficiency:

  • 20% of the borrower’s non-retirement cash reserves, or

  • four times the contractual monthly mortgage loan payment including PITI. If the servicer does not escrow for T&I, it must estimate the borrower’s monthly tax and insurance premium amounts.

If the servicer determines it is warranted based on its assessment of the borrower’s individual situation and circumstances and ability to contribute, it is authorized to

  • request a lower initial cash contribution amount,

  • negotiate a lower cash contribution amount, or

  • agree to no cash contribution amount.

Note: If the mortgage loan is current or less than 60 days delinquent, the borrower must contribute a minimum of 20% of his or her non-retirement cash reserves.

The servicer must follow the procedures in Requesting Approval for a Non-Delegated Short Sale Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval if

  • the borrower refuses to make a cash contribution in an amount the servicer determines is reasonable, or

  • the mortgage loan is current or less than 60 days delinquent and the borrower refuses to contribute a minimum of 20% of his or her non-retirement cash reserves.

The requirement for a cash contribution is waived if the contribution amount is less than $500.

Note: The servicer must not request updated documentation from the borrower when evaluating the borrower’s ability to make a cash contribution and the complete BRP is greater than 90 days old. However, if the borrower’s credit report is greater than 90 days old when the servicer evaluates the borrower’s ability to make a cash contribution, the servicer must obtain a new credit report.

Evaluating the Credit Report for New Mortgage Loans Obtained

For all short sale cases except those in which the servicer evaluated the borrower for a short sale without receiving a complete BRP in accordance with Evaluating a Borrower to Determine Eligibility for a Fannie Mae Short Sale, the servicer must review each borrower’s credit report to determine

  • if the borrower(s) obtained a new mortgage loan in the six months preceding the delinquency on the mortgage loan secured by the subject property; or

  • in the case of a current mortgage loan, in the six months preceding the evaluation for a short sale.

If the servicer determines that the borrower obtained a new mortgage loan in the six months preceding the delinquency, or preceding the evaluation for a short sale, as applicable, the mortgage loan is only eligible if the hardship, which must be documented in accordance with Form 710, was due to

  • a distant employment transfer/relocation greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan is the borrower’s principal residence,

  • new employment greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan is the borrower’s principal residence, or

  • PCS orders relocating a servicemember greater than 50 miles one way from the property securing the mortgage loan and the property securing the mortgage loan was or currently is the servicemember’s principal residence.

In all other instances, the servicer must submit a recommendation to Fannie Mae for review. The servicer must follow the procedures in Requesting Approval for a Non-Delegated Short Sale Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae's approval.

Obtaining a Property Valuation

If the borrower expresses interest in a short sale and the servicer determines that the borrower meets the eligibility criteria for a Fannie Mae short sale as stated above, it must place a property valuation order directly with Fannie Mae to determine the market value of the property securing the mortgage loan.

The servicer must follow the procedures in Obtaining a Property Valuation in F-1-16, Processing a Fannie Mae Short Sale for obtaining a property valuation.

Also, see Processing a Fannie Mae Short Sale for a Mortgage Loan With Mortgage Insurance for additional requirements.

Determining Allowable Short Sale Transaction Costs

The following are the types of short sale transaction costs that may be deducted from the contract sales price:

  • real estate sales commission customary for the market, which must not exceed 6% of the sales price of the property;

  • short sale negotiation fees, provided they are deducted from the allowable real estate sales commission;

  • real estate taxes and other assessments prorated to the date of closing;

  • typical and customary local and state transfer taxes and stamps;

  • title and settlement charges typically paid by the seller;

  • seller’s attorney fees for settlement services typically provided by a title or escrow company;

  • wood-destroying pest inspections and treatment, when required by local law or custom;

  • HOA fees that are past due, if applicable;

  • buyer closing costs typically paid by the seller that are usual and customary for the local market; and

  • any other amounts if authorized by Fannie Mae.

Fannie Mae prohibits the following transaction costs:

  • any outsourcing fees or non-customary third party fees;

  • real estate sales commission paid to the borrower or the purchaser;

  • buyer’s discount points or mortgage loan origination costs; or

  • fees that are not usual or customary for the local market.

Listing the Property and Evaluating a Short Sale

Listing the Property: The following table provides the servicing requirements for initial engagement with a real estate agent depending on whether or not the property is already listed.

If the property... Then the servicer...

is already listed with a real estate agent

  • must ask the borrower to provide the real estate agent’s name, address, and telephone number; and

  • must contact the agent to explain the requirements related to the short sale and refer the agent to HomePath for Short Sales to register the short sale offer, as applicable.

has not yet been listed for sale

  • is authorized to assist the borrower in finding an agent to handle the listing, as long as the servicer explains to the borrower that he or she may select a different agent; and

  • is authorized to provide list price guidance.

Note: The property must be listed with a licensed real estate agent who is not a borrower on the mortgage loan.

The servicer must provide written correspondence to the borrower and/or the borrower's real estate agent to include the following information:

  • a statement that the suggested list price is provided only as guidance, and not as the required list price;

  • a statement that an offer at or above Fannie Mae's suggested list price may not automatically result in an approval of the short sale by Fannie Mae; and

  • the types of transaction costs that Fannie Mae allows to be deducted from the contract sales price, as listed previously.

The property must be listed with an active status on an MLS for a minimum of five consecutive calendar days, including a Saturday and a Sunday, prior to the servicer submitting the short sale recommendation to Fannie Mae for approval.

  • Note: The property must be listed on the applicable MLS which covers the geographic area in which the property is located. If a property is located in an area that is not covered by an MLS, the property must be advertised in a manner customary for that real estate market for at least five consecutive calendar days, including a Saturday and a Sunday.

Evaluating a Short Sale: The following table provides the required time frames for the servicer to evaluate the short sale and close the short sale transaction.

Time Frame Requirements

Within five business days of receipt of an initial short sale offer

  • Acknowledge receipt of the short sale offer.

  • Provide the borrower with a checklist of required documentation, including any documentation required for a complete BRP, if necessary, if the short sale offer is submitted with incomplete information (see Evaluating a Borrower to Determine Eligibility for a Fannie Mae Short Sale above).

  • Refer the agent to HomePath for Short Sales to register the short sale offer.

Within 30 calendar days of receipt of a complete BRP, if required, and an initial short sale offer

Provide, in writing, Fannie Mae's response to the short sale offer, to include one of the following:

Within ten business days of receipt of any revised short sales offer

Communicate a decision to the borrower on the revised short sale offer.

Within 60 calendar days of the servicer’s approval of a short sale offer

The short sale transaction must close unless the servicer requests written approval from Fannie Mae to extend this time frame.

The servicer must follow the procedures in Requesting Approval for a Non-Delegated Short Sale Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions Systemfor requesting Fannie Mae’s approval.

Allowable Payments to Subordinate Lienholders

The following table provides the requirements that apply to allowable payments to subordinate lienholders for a Fannie Mae short sale.

Requirements for payments to subordinate lienholders

Payments to subordinate lienholders must be in exchange for

  • a lien release,

  • a full release of liability for the borrower, and

  • extinguishment of the indebtedness secured by the subject property.

Payments from the sales proceeds to all subordinate lienholders to facilitate lien releases must not exceed $6,000 in aggregate. If an individual subordinate lien or total subordinate liens are less than $6,000, the payoff must not exceed the subordinate lien amount owed. If there are multiple subordinate lienholders, the servicer has discretion to divide the subordinate lien payments among the subordinate lienholders.

Payments to subordinate lienholders must be paid from the sales proceeds at the closing of the short sale transaction.

Funds must only be used for subordinate mortgage liens or deeds of trust recorded in the land records that constitute a valid lien against the subject property.

Funds must not be used for payment of other types of liens which may include, but are not limited to, the following:

  • HOA liens,

  • judgments,

  • mechanic’s liens, and

  • materialmen’s liens.

Note: If these or similar types of other liens impede the closing of a short sale, the servicer must include a written explanation in its case submission to Fannie Mae for prior written approval

Prior to releasing any funds to a subordinate lienholder, the servicer must obtain written commitment from the subordinate lienholder that it will

  • release the borrower from all claims and liability relating to the subordinate lien in exchange for receiving the agreed-upon payoff amount,

  • waive all rights to seek a deficiency judgment against the borrower, and

  • not require a cash contribution in addition to any funds provided by Fannie Mae as a condition for releasing its lien and releasing the borrower from personal liability.

If the subordinate lienholder chooses to release its lien to allow the short sale to close, but does not agree to release the borrower from liability on the note, it cannot receive a payment from Fannie Mae. Regardless of whether payment is made to a subordinate lienholder, the servicer must obtain written commitment from the subordinate lienholder(s) to release the lien(s).

The servicer must require the closing law firm or settlement agent to either

  • confirm that they are in receipt of the written commitment from subordinate lienholder(s) to release the lien(s), or

  • request that a copy of the written commitment provided by the subordinate lienholder be sent to the servicer with the settlement statement which is provided in advance of the closing.

Incentive Payments to Assist a Borrower with Relocation Expenses

When a property securing the mortgage loan is the borrower’s principal residence at the time of the Evaluation Notice, the borrower is entitled to an incentive payment of $3,000 from Fannie Mae to assist with relocation expenses following the successful completion of a Fannie Mae short sale unless one of the following apply:

  • the borrower is required to contribute cash, even if the borrower fails to contribute; or

    Note: If the servicer believes relocation assistance is warranted despite the borrower’s failure to contribute, the servicer must submit its relocation assistance recommendation to Fannie Mae for prior written approval.

  • the borrower has PCS orders and receives a DLA or other government relocation assistance.

    Note: If government relocation assistance is not provided to a borrower with PCS orders, the servicer must submit its relocation assistance recommendation to Fannie Mae for prior written approval.

The servicer must adjust the amount of Fannie Mae’s relocation assistance in accordance with the following table.

If... Then the servicer...

the servicer provides relocation assistance

must not deduct that amount from Fannie Mae’s relocation assistance amount.

another source provides relocation assistance

must deduct that amount from Fannie Mae’s relocation assistance amount.

The servicer must adhere to the requirements in the following table related to the payment of the borrower’s relocation incentive payment.

The servicer must...

Instruct the closing law firm or settlement agent to disburse the amount of the relocation incentive payment provided by Fannie Mae to the borrower at closing from the short sale proceeds, if applicable.

Note: The servicer must not pay relocation assistance provided by any source other than Fannie Mae from the short sale proceeds.

Not attempt to renegotiate the relocation incentive payment amount to a lesser amount.

Not require the borrower to apply the relocation incentive payment to obtain the release of other liens or non-real estate title impediments.

Providing a Deficiency Waiver for Certain Mortgage Loans

The servicer must release the borrower from liability for any deficiency associated with the Fannie Mae mortgage loan upon successful completion of a Fannie Mae short sale for the following mortgage loans:

  • mortgage loans that do not have MI; and

  • mortgage loans that have MI, but the mortgage insurer has granted Fannie Mae delegation of authority (see Processing a Fannie Mae Short Sale for a Mortgage Loan With Mortgage Insurance).

The servicer must provide a deficiency waiver to the borrower at the closing, if applicable.

While use of the Deficiency Waiver Agreement (Form 189) is optional, it reflects a minimum level of information that the servicer must include.

Servicer Responsibility for Anti-Fraud Measures

If there is evidence of fraud or misrepresentation in the short sale transaction, the servicer must notate the suspected inappropriate activity in its recommendation to Fannie Mae for review. The servicer must follow the procedures in Requesting Approval for a Non-Delegated Short Sale Case in F-1-27, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

The following table provides the conditions that must be met for all short sale transactions.

Conditions for completion of a Fannie Mae short sale transaction

All parties involved in the short sale transaction must sign and date a Short Sale Affidavit (Form 191) at the closing.

Note: If the closing law firm or settlement agent is prohibited by law from signing Form 191, the servicer must condition the waiver of the signature upon an agreement that the closing law firm or settlement agent will not act as the closing agent on a subsequent transaction involving the subject property within one year of the closing of this short sale transaction.

The borrower or the purchaser must not receive any funds or commissions from the sale of subject property, with the exception of the borrower receiving a relocation incentive payment from Fannie Mae or another acceptable source (see Incentive Payments to Assist the Borrower with Relocation Expenses for additional information).

Any relocation incentive payment received by the borrower from Fannie Mae must be reflected on the settlement statement.

The deed conveying the property to the purchaser must be amended, in compliance with applicable state law, to include the following provision:

“Grantee herein is prohibited from conveying captioned property for any sales price for a period of 30 days from [Insert date of short sale closing]. After this 30–day period, Grantee is further prohibited from conveying the property for a sales price greater than $ [Insert value equal to 120% of short sale price] until 90 days from [Insert date of short sale closing]. These restrictions shall run with the land are not personal to the Grantee.”

Note: If a short sale falls into either of the following categories and the purchaser requests a waiver of the deed restriction requirement, the servicer must submit its recommendation to Fannie Mae for prior written approval:

  • HAP provided by the Department of Defense, or

  • a purchase that is the result of an employer relocation program.

Within 48 hours of the short sale transaction closing, the servicer must review the settlement statement to validate compliance with this Guide and for accuracy, including the following items:

  • that the purchaser and the sales price match the purchase contract;

  • that the settlement statement is consistent with the closing instructions, particularly ineligible transfer of title to related parties; and

  • that the deed has been sent for recordation in the name of the buyer.

Processing a Fannie Mae Short Sale for a Mortgage Loan with Mortgage Insurance

The servicer must see F-2-06, Mortgage Insurer Delegations for Workout Options for the list of mortgage insurers from which Fannie Mae has obtained delegation of authority on behalf of all servicers, which allows the servicer to process a Fannie Mae short sale in accordance with this Guide without obtaining separate mortgage insurer approval at the company or loan level.

For mortgage insurers from which Fannie Mae has not obtained delegation of authority, the servicer must, once it has obtained the property valuation, contact the mortgage insurer to discuss the possibility of pursuing a short sale and must not agree to a short sale unless the mortgage insurer agrees in writing to the following:

  • to waive its property acquisition rights before the claim is filed, and

  • to settle the claim by paying the lesser of the full percentage option under the terms of the master policy or the amount required to make Fannie Mae whole.

In discussing the possibility of a short sale with the mortgage insurer, the servicer must keep in mind the conditions under which Fannie Mae will accept a short sale. If the mortgage insurer refuses to consider a short sale or offers to settle the claim for an amount that is less than the percentage option or Fannie Mae’s “make whole” amount, the servicer must contact its Fannie Mae Servicing Representative (see F-4-03, List of Contacts).

The servicer must file a primary MI claim on all conventional first lien mortgage loans on which Fannie Mae bears the risk of loss and is insured under a master primary MI policy with the exception of RMIC. The servicer must follow the procedures in F-1-06, Filing an MI Claim for a Liquidated Mortgage Loan or Acquired Property for filing the MI claim.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC-2018-08 November 14, 2018
Announcement SVC-2017-06 July 12, 2017
Announcement SVC-2017-05 June 21, 2017
Announcement SVC-2017-04 May 10. 2017
Announcement SVC-2017–01 January 18, 2017
Announcement SVC–2016–06 July 13, 2016
Announcement SVC–2015–13 October 14, 2015
Announcement SVC-2015–12 September 9, 2015