D2-3.3-01, Fannie Mae Short Sale (12/21/2022)

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

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 PackageD2-2-05, 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 ReimbursementF-1-05, Expense Reimbursement for requesting reimbursement of allowable fees.

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

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.

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-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for 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 they were approved without a purchase offer and does not fully reinstate the mortgage loan.

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

• they are a servicemember with PCS orders relocating them 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. See Determining Whether a Borrower Response Package is Complete in D2-2-05, Receiving a Borrower Response Package for additional information.

• 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-1-14, Processing a Fannie Mae Short SaleF-1-14, 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 their non-retirement cash reserves.

The servicer must follow the procedures in Requesting Approval for a Non-Delegated Short Sale Case in  F-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, 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 their 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.

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-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae's approval.

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-1-14, Processing a Fannie Mae Short SaleF-1-14, 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.

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: 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.

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.

The servicer must follow the procedures in Requesting Approval for a Non-Delegated Short Sale Case in  F-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions System for requesting Fannie Mae’s approval.

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

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.

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 $7,500 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.

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 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.

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-1-24, Requesting Fannie Mae’s Approval via Fannie Mae’s Servicing Solutions SystemF-1-24, 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.

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.

The servicer must see  F-2-06, Mortgage Insurer Delegations for Workout OptionsF-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-4-02, List of ContactsF-4-02, 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 PropertyF-1-06, Filing an MI Claim for a Liquidated Mortgage Loan or Acquired Property for filing the MI claim.