Short sales by loan type
Your servicer collects the payment. Somebody else makes the decision.
The company on your statement usually doesn’t own the loan. The investor or insurer behind it sets the short sale rules. The first thing I find out is who that is.
Straight answers. Real options. No automatic assumption that selling is the answer.
Who is behind the loan
Four kinds of loans. Four rulebooks.
The servicer follows the rulebook of whoever takes the loss. Know the rulebook and you know what the answer will be before you ask.
FHA loans
FHA calls its short sale a pre-foreclosure sale. HUD sets the rules and the servicer follows them. Expect a formal approval to participate before the house is marketed, an FHA appraisal that sets the value, a minimum net the offer has to produce, and a fixed marketing window. Owner occupants may qualify for a relocation incentive at closing. Because the value comes from an appraisal, pricing has to be handled carefully from the start.
VA loans
VA calls it a compromise sale. The servicer works the file and VA approval is involved because VA pays a claim on the shortfall. A VA appraisal is ordered. Veterans should ask how a compromise sale affects their remaining entitlement, since that controls what they can borrow with a VA loan next time. That’s a question for the VA or a VA-experienced loan officer.
Fannie Mae and Freddie Mac loans
Most conventional loans are owned by one of these two. Both publish standard short sale guidelines that servicers follow, including what documents are required, how value is set, and how much a junior lien holder can be paid. Both have public lookup tools where you can check whether they own your loan. Standardized rules make these files more predictable.
Bank-owned, private, and securitized loans
Loans held in a bank’s own portfolio, in a private securitized trust, or by a private lender follow that owner’s rules. Some are flexible. Some require approval from an investor or a mortgage insurer you never deal with directly. These take the most digging.
What it changes
What the loan type means for you.
Things that depend on the loan type
- Whether you have to be delinquent to be reviewed
- Which documents are required and how recent they must be
- Whether value is set by an appraisal or a broker price opinion
- How long the property has to be marketed
- How much a second lien holder can be paid
- Whether relocation assistance is available
- Whether mortgage insurance has to sign off
Things that don’t change
California’s deficiency protection under CCP 580e is state law. It applies to approved short sales of one to four unit homes regardless of servicer. The basic process is the same too: package, offer, valuation, negotiation, written approval, closing.
How to find out what you have
- Your mortgage statement and closing documents show whether the loan is FHA or VA
- An FHA loan has an FHA case number and a monthly mortgage insurance premium
- Fannie Mae and Freddie Mac each have a free loan lookup on their websites
- Your servicer has to tell you who owns the loan if you ask in writing
Or send me the statement. I can usually tell in a few minutes.
Guidelines change. I check the current rule for your loan before I quote you a number or a timeline.
This page is general information, not legal, tax, or financial advice. Laws and lender guidelines change, and every situation is different. For legal or tax questions, talk to a licensed California attorney or CPA.
Questions I get
Straight answers.
Can I short sale an FHA loan if I’m current on payments?
FHA has specific eligibility rules about delinquency and hardship. Some borrowers who are current but facing a documented hardship can be reviewed. The servicer makes the determination under HUD’s rules.
Will I lose my VA eligibility after a compromise sale?
Not necessarily all of it, but the entitlement tied to that loan may not be restored until the VA’s loss is repaid. Ask the VA or a VA loan specialist how it applies to you.
Does it matter which company services my loan?
Yes, in practice. Servicers differ in how they staff and process short sales. But the rules come from the investor or insurer, so that is the first thing I identify.
What if I have private mortgage insurance?
The mortgage insurer may have to approve the short sale. It can also ask for conditions. The approval letter should be read carefully, ideally by an attorney, when a mortgage insurer is involved.
Are reverse mortgages handled the same way?
No. A reverse mortgage has its own payoff rules, especially after the borrower has passed away. If that’s your situation, call me and I’ll walk through it.
Get a straight answer
Tell me what’s going on. I’ll tell you whether I can help.
Give me the facts. I will ask questions. Then we will know what the real options are and whether I am the right person for the job.