- Who sends it
- Your mortgage servicer, after the loan owner and any mortgage insurer agree
- What it starts
- A closing deadline. For a Fannie Mae loan, the sale must close within 60 days of approval unless an extension is approved
- Do this first
- Find the sentence about the remaining balance. If it does not say you are released, ask in writing before closing
What this letter approves
A short sale is a sale of your home for less than the mortgage balance, with the lender's permission. The approval letter is the lender saying yes to one specific deal. It usually names the buyer, the sale price, the closing date or deadline, and the least amount of money the lender will accept from the sale after costs (often called net proceeds). If anything in the deal changes, the approval may no longer apply.
Different loan programs use different letters:
- Fannie Mae loans: after it has your complete application and a first offer, the servicer must answer in writing within 30 calendar days with an approval, a counteroffer (which asks for your answer within 5 business days) or a denial. A revised offer gets a decision within 10 business days. Once approved, the sale must close within 60 calendar days unless the servicer gets Fannie Mae's written OK to extend.
- FHA loans: HUD calls a short sale a pre-foreclosure sale. The first letter, an Approval to Participate (form HUD-90045), is not approval of a buyer. It lets you start marketing. You must sign and return it within 10 days of getting it, hire a licensed real estate agent within 7 days, and you then have four months to get a signed sales contract. After the servicer gets a signed contract, it must send you a Sales Contract Review (form HUD-90051) within 5 business days.
- VA loans: VA calls this a compromise sale, sometimes called a short sale. VA's rules let the servicer approve it when the loan cannot be saved, the amount credited to the debt is at least the home's net value, and you as the seller get no money from the sale.
- USDA guaranteed loans: USDA allows a short sale for fair market value, with the price less reasonable selling and closing costs applied to your loan account.
Will you still owe the rest? What to look for
This is the most important question on the page. Releasing the lien (the lender's claim on the house) so the buyer gets clear title is not the same as releasing you from the debt. Read the letter for words like "deficiency waiver", "release of liability", "satisfied in full" or "full payment of the debt". Be careful if you see "promissory note", "cash contribution", "you remain liable" or "we reserve the right to collect the deficiency".
- Fannie Mae loans: the servicer must release you from any deficiency on the Fannie Mae loan when the short sale closes, if the loan has no mortgage insurance or the insurer has given Fannie Mae authority to approve it. The waiver is to be given to you at closing. Fannie Mae's Deficiency Waiver Agreement (Form 189) shows the minimum information it must contain.
- FHA loans: in a pre-foreclosure sale, the lienholders release their liens and forgive the deficiency balance. HUD also says that if a foreclosure happens after you took part in the program in good faith but could not sell, neither the servicer nor HUD will pursue you for a deficiency judgment.
- VA loans: VA's own page says that in a short sale the servicer accepts the total sale proceeds as full payment of the debt you owe. You will need to repay VA's loss to restore your VA home loan benefit for a future loan.
- Freddie Mac, USDA and private loans: the official pages we read describe the short sale but do not promise a deficiency waiver. Your letter decides. If it is silent, ask the servicer in writing to add a release of liability before you sign anything at closing.
- A second mortgage or home equity line is a separate debt. Fannie Mae will let up to $6,000 total from the sale go to second lienholders, but only in exchange for releasing the lien and fully releasing you from that debt. Get each lender's release in writing.
State law can also limit whether a lender can collect a shortfall. In California, no deficiency is allowed after an approved short sale of a home with 1 to 4 units. In Nevada, a deficiency is barred after an agreed short sale on certain home loans when the written agreement waives it. In states such as Virginia, Delaware and the District of Columbia, our state pages suggest asking for the waiver in writing and talking to a lawyer about what you could still owe. Each state's after-sale page shows its deficiency rule, for example California and Nevada. Find your state.
Conditions and deadlines to check
- The buyer and price match your signed contract. The servicer checks the closing papers against the contract, so a change can undo the approval.
- The closing deadline or expiration date. If closing will be late, ask for an extension in writing before the date passes.
- Costs the lender will pay from the sale, such as the agent's commission, prorated taxes and seller closing costs, and anything it will not pay. FHA limits the commission it allows to 6 percent.
- Any request that you pay money. Fannie Mae may ask for a cash contribution in some cases, for example when your non-retirement savings are over $10,000, and waives it if the amount would be under $500.
- Relocation money. Fannie Mae pays a $7,500 relocation incentive at closing when the home was your principal residence and you were not asked to contribute cash.
- Who signs what at closing. Fannie Mae requires everyone in the deal to sign a Short Sale Affidavit (Form 191), and FHA requires a signed Pre-Foreclosure Sale Addendum. You and the buyer generally cannot receive other money from the sale.
- No fee for you. HUD says the servicer and its vendors must not charge you any fee to take part in an FHA pre-foreclosure sale.
What to do this week
- Give a copy of the letter to your real estate agent and the closing agent right away, and calendar every deadline in it.
- Read the deficiency language with a free HUD-approved housing counselor at (800) 569-4287, or a lawyer. If the release is missing or unclear, ask the servicer in writing to fix it before closing.
- Keep making the home easy to show and keep up basic maintenance. FHA requires it until closing, and Fannie Mae says you stay responsible for upkeep until the sale settles.
- Do not assume the foreclosure has stopped. Fannie Mae tells servicers to warn you that listing the home may not delay a foreclosure. Under federal rules, you count as performing on a short sale agreement during the agreed listing period, but if that period ends without an approved sale, the servicer may treat it as a failure to perform. Ask in writing whether any sale date has been postponed.
- Plan for taxes. Forgiven mortgage debt can count as income. The tax break for a main home expired for debt forgiven in 2026 unless a written arrangement existed before January 1, 2026, though the insolvency exclusion still applies. Read taxes after foreclosure or forgiven debt and the Form 1099-A and 1099-C page.
- Expect a credit impact. HUD tells servicers to report FHA pre-foreclosure sales to the credit bureaus and to warn you that it will likely affect your ability to get another mortgage.
New to short sales? Read how a short sale works, and compare it with a deed in lieu.
Scams tied to short sales
Short sales draw people who want a cut of the deal. Watch for:
- A "negotiator" or "facilitator" who wants a fee from you, or wants it hidden in the closing costs. HUD does not allow fees to negotiate an FHA short sale on the closing papers unless state law allows them.
- A buyer or agent who suggests a side deal: cash to you outside closing, a promise to sell the home back to you later, or a friend posing as an unrelated buyer. Fannie Mae and FHA require an honest, arm's length sale, and a hidden deal can cancel the approval.
- Anyone who asks for a fee before you have signed an agreement with your servicer. A company that is not your lawyer cannot charge for mortgage relief until then.
- Anyone who tells you to stop talking to your servicer, your housing counselor or your lawyer.
- Anyone who asks you to sign over your deed, or to send money anywhere other than to your servicer or the closing agent named in your papers.
Read how to spot a foreclosure rescue scam. Report fraud at ReportFraud.ftc.gov and servicer problems to the CFPB.
How much time do you have? It depends on your state.
See the foreclosure timeline, deadlines and free local help for the state where the home is.
Common questions
Does short sale approval stop my foreclosure?
Not by itself. Ask your servicer in writing to postpone any sale date while the approved deal closes. Federal rules treat you as performing during the agreed listing period, but the protection ends if the period runs out without an approved sale. See your federal rights.
What if the closing is delayed past the date in the letter?
Ask for an extension in writing before the deadline. Fannie Mae requires closing within 60 days of approval unless it approves more time. For FHA loans, HUD gives the servicer two more months before it must start foreclosure if you have a signed contract but have not closed by the end of the fourth month.
Can I get any money from a short sale?
Usually not from the sale itself. VA's rules say the seller gets no proceeds, and Fannie Mae allows only its relocation incentive. Ask your servicer whether your loan program offers any relocation help.
My second mortgage lender wants me to sign a note for the rest. Should I?
Talk to a housing counselor or lawyer first. For Fannie Mae loans, a second lienholder can be paid from the sale only if it releases you from the debt. If it will release only the lien, you may still owe it.
Keep reading
- Late notice and early intervention letterThis letter is a warning, not a foreclosure. Federal rules make your servicer reach out early and tell you about help. In most cases a foreclosure cannot start until you are more than 120 days behind, so this is the best time to act.
- Breach letter (demand or notice of intent to accelerate)A breach letter says you are in default and gives you a date to catch up. If you do not, the lender can call the whole loan due and move toward foreclosure. Many standard mortgages and deeds of trust require at least 30 days to cure.
- Notice of defaultIn many states that foreclose without a court, a recorded notice of default is the official start of the foreclosure. It is not a sale and not an eviction. It starts a waiting period before a sale can be set, and you can usually still catch up or apply for help.
- Notice of intent to forecloseMany states make the lender send a warning letter before it can start a foreclosure. These letters often give you a set number of days, a cure amount and a list of free counselors. The deadline in the letter matters, so act on it now.
- Lis pendens (notice of pendency)A lis pendens is a public notice, filed in the land records, that a lawsuit or foreclosure affecting your home is pending. It does not mean the home is sold or that you must move. It usually means the court papers are coming or have already been served.
- Foreclosure summons and complaintA summons and complaint means the lender has sued to foreclose. You have a short, firm deadline to respond in writing, often 20 to 30 days from the day you were served. Missing it can let the lender win without your side being heard.
Sources
- Fannie Mae Servicing Guide D2-3.3-01, short sale
- HUD Handbook 4000.1, Update 18 (August 2026), FHA loss mitigation
- HUD Mortgagee Letter 2025-12, permanent loss mitigation options
- 38 C.F.R. § 36.4322, VA rules for short sales and deeds in lieu (eCFR)
- 38 C.F.R. § 36.4801, VA definitions: compromise sale (eCFR)
- VA: Help to avoid foreclosure
- Freddie Mac: Options to leave your home
- 7 C.F.R. § 3555.305, USDA voluntary liquidation (eCFR)
- Supplement I to 12 C.F.R. part 1024, official interpretations of § 1024.41 (eCFR)
- IRS Publication 4681, canceled debts, foreclosures, repossessions and abandonments
- IRS Topic 431, canceled debt
- 12 C.F.R. § 1015.5, ban on advance fees for mortgage relief (eCFR)
- CFPB: Find a housing counselor
- FTC: Mortgage relief scams