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Freddie Mac Standard Short Sale FAQs

The following are answers to frequently asked questions about Freddie Mac’s requirements for the Freddie Mac Standard Short Sale. They provide additional guidance on our Standard Short Sale requirements but are not a replacement or substitute for information found in the Single-Family Seller/Servicer Guide (Guide) or the terms of your Master Agreement and/or Master Commitment.

For complete requirements, review Guide Chapter B65, Workout Options.

Borrower Eligibility

  1. How do you determine the delinquency status of a borrower?
  2. Are borrowers in bankruptcy eligible for a Standard Short Sale? What are the requirements?

Borrower Evaluation

  1. When do I begin evaluating a borrower?
  2. Does the Borrower Response Package expire for a Standard Short Sale evaluation?

Delegated Authority

  1. Am I required to obtain approval from Mortgage Insurers (MI) on applicable loans?
  2. Is there an exception process to the resale restriction?
  3. If I approve a Standard Short Sale and the mortgage is greater than 12 months delinquent with a scheduled foreclosure sale date, am I required to request Freddie Mac’s approval to postpone the foreclosure sale?

Estimated Market Value and Minimum Net Proceeds

  1. Is a borrower required to use the estimated market value provided by Freddie Mac as the list price?
  2. If I have a property value that was obtained when I evaluated the borrower for other workout options, can I use the same value for the Standard Short Sale?

Short Sale Transactions

  1. Is there a set period of time to close the short sale?
  2. If there is more than one real estate professional facilitating the short sale transaction, can they split the commission?
  3. Can a borrower or buyer be represented by a real estate professional who is related to the borrower or buyer?
  4. Can a borrower who is also a real estate professional represent himself or herself in a short sale transaction?
  5. Can a corporation, LLC, partnership, trust, or similar entity purchase a short sale property? How do they execute the short sale affidavit?

Subordinate Lien Holders

  1. If the subordinate lien holder will not release its lien for $6,000 (or a lesser amount if there are other subordinate lien holders), can the borrower or another party contribute to the lien release payment?
  2. How does the $6,000 maximum for subordinate lien payments affect IRS liens, tax liens, mechanics liens, HOA liens, etc.?

Borrower Cash Contributions

  1. Where can I find information on how to determine a borrower's cash contribution?

Settlement

  1. Based on the terms provided in the short sale affidavit, how will I determine if fraud occurred after the short sale transaction closed?
  2. Will Freddie Mac pursue a deficiency judgment against a borrower who completed a Standard Short Sale?

Borrower Cash Contributions

  1. If the borrower is eligible for relocation assistance but does not request it, am I still required to offer it?
  2. Can I apply relocation assistance towards the minimum net proceeds amount in order to close the transaction?
  3. Are there compensatory fees associated with the Standard Short Sale?
  4. Will Freddie Mac issue relocation assistance to an eligible borrower who completes a short sale on an investment property?
  5. The subordinate lien holder will not agree to the short sale unless we agree to not pay the borrower relocation assistance to the borrower. Can they condition their approval like this?

Borrower Eligibility

  1. How do you determine the delinquency status of a borrower?

    When you evaluate a borrower to determine his or her eligibility for a Standard Short Sale, you must use the delinquency status of the mortgage on the date you begin the evaluation using the required documentation in accordance with Guide Section B65.37 (a).

  2. Are borrowers in bankruptcy eligible for a Standard Short Sale? What are the requirements?

    Yes, borrowers in bankruptcy are eligible for a Standard Short Sale. If a borrower, the borrower’s trustee, or the borrower’s attorney contacts you expressing interest in a short sale, the Servicer should evaluate the borrower for a Standard Short Sale. The eligibility requirements are the same as those in Guide Section B65.36, provided you also comply with applicable law.

Borrower Evaluation

  1. When do I begin evaluating a borrower?  

    You must begin evaluating a borrower when you receive a complete Borrower Response Package (BRP). For a borrower who is 90 days or more delinquent and has ether a FICO score less than 620 or whose mortgage debt has been discharged pursuant to a Chapter 7 bankruptcy, you may evaluate the borrower for a short sale without a BRP as long as the borrower meets all the requirements for a Streamlined Short Sale. In both cases, the borrower must have been reviewed first for a refinance or a home retention option.

  2. Does the Borrower Response Package expire for a Standard Short Sale evaluation?

    No, you are not required to obtain a new Borrower Response Package if the borrower was approved for a Standard Short Sale, but did not have a purchase offer at the time of the initial evaluation. However, if a purchase offer is submitted and the Borrower Response Package is more than 90 days old as of the date of the initial evaluation, you must update the borrower’s credit report if it has become more than 90 days old. Refer to Guide Section B65.37 for exceptions to the FICO score seasoning requirements.

Delegated Authority

  1. Am I required to obtain approval from Mortgage Insurers (MI) on applicable loans?

    Freddie Mac has standard delegation agreements with MI companies that grant permission for Servicers to approve the terms of a Standard Short Sale transaction as long as the terms of the short sale are in line with Freddie Mac’s requirements. To view a list of mortgage insurance companies that have a delegated authority agreement with Freddie Mac, click the Delegated MI Companies link on the Home page in the Freddie Mac Service Loans application. If an MI company is not listed or is de-listed, then you must obtain approval from the MI company on applicable loans.

  2. Is there an exception process to the resale restriction?

    If the circumstances of the transaction require a resale restriction be omitted from the deed, then you must send the request to Freddie Mac at NPL_File_Prep@FreddieMac.com for approval before instructing the closing attorney to exclude the restriction from the deed. You must include an explanation of the borrower’s request to have the resale restriction omitted.

  3. If I approve a Standard Short Sale and the mortgage is greater than 12 months delinquent with a scheduled foreclosure sale date, am I required to request Freddie Mac’s approval to postpone the foreclosure sale?

    No, if you approved the short sale based on a review of a purchase offer and a complete Borrower Response Package (or other streamlined documentation as permitted), you must suspend the foreclosure sale where permitted under state or local law without seeking prior approval from Freddie Mac.

Estimated Market Value and Minimum Net Proceeds

  1. Is a borrower required to use the estimated market value provided by Freddie Mac as the list price?

    No, the estimated market value provided by Freddie Mac is only guidance and is for the borrower’s reference only. The borrower and his or her real estate professional are responsible for determining the property list price and may decide on a price that is higher or lower than the estimated market value, keeping in mind that the minimum net proceeds must be met.

  2. If I have a property value that was obtained when I evaluated the borrower for other workout options, can I use the same value for the Standard Short Sale?

    No. As described in the Standard Short Sale requirements, you must obtain a property value and minimum net proceeds through the Service Loans application when evaluating a borrower for a Standard Short Sale.

Short Sale Transactions

  1. Is there a set period of time to close the short sale?

    Yes. You must ensure that the short sale is closed within 60 calendar days of when you approve the purchase offer.

  2. If there is more than one real estate professional facilitating the short sale transaction, can they split the commission?

    Real estate professionals can split the commission among themselves. The amounts will be based on the terms of their real estate brokerage agreement and any applicable real estate laws. Freddie Mac does not dictate how the commission is divided.

  3. Can a borrower or buyer be represented by a real estate professional who is related to the borrower or buyer?

    Yes, as long as the relationship is disclosed to the buyer and the short sale transaction remains an arm’s length transaction. There cannot be any undisclosed agreements or preferential treatment to the borrower or buyer as a result of the relationship.

  4. Can a borrower who is also a real estate professional represent himself or herself in a short sale transaction?

    Yes. However, he or she is not allowed to collect a commission out of the transaction.

  5. Can a corporation, LLC, partnership, trust, or similar entity purchase a short sale property? How do they execute the short sale affidavit?

    Yes, corporations, LLCs, partnerships, trusts, or similar entities can purchase a short sale. You must revise the short sale affidavit to list the members of the entity that are signing the affidavit and their capacity to sign. All other requirements for a Standard Short Sale still apply, including the resale restriction.

Subordinate Lien Holders

  1. If the subordinate lien holder will not release its lien for $6,000 (or a lesser amount if there are other subordinate lien holders), can the borrower or another party contribute to the lien release payment?

    If the subordinate lien holder is accepting $6,000 (or a lesser amount if the $6,000 is being divided among more than one lien holder) in exchange for a release of its lien, it cannot require or accept additional funds from the borrower, real estate professional(s), buyer, or other party to the short sale transaction. When funds are offered from the short sale proceeds to satisfy a subordinate lien, the intent is to obtain a complete settlement of the lien and debt using those funds alone.

  2. How does the $6,000 maximum for subordinate lien payments affect IRS liens, tax liens, mechanics liens, HOA liens, etc.?

    The maximum amount of sale proceeds that is available for all types of subordinate liens is $6,000. Liens that have priority over the first mortgage lien, such as HOA super-priority liens in some states, should not be included in the $6,000 maximum. Those liens must be paid from other closing costs permitted by Freddie Mac to be paid from the sales proceeds (currently 3 percent) or by the borrower from his or her own funds.

Borrower Cash Contributions

  1. Where can I find information on how to determine a borrower's cash contribution?

    For detailed requirements on determining a borrower's cash contribution, refer to Guide Section B65.37. You are also encouraged to reference the Borrower Contributions for Standard Short Sales and Deed-in-Lieu of Foreclosure Reference Guide. To access this secure resource, you must use your Servicing Technology Tools ID and password.

Settlement

  1. Based on the terms provided in the short sale affidavit, how will I determine if fraud occurred after the short sale transaction closed?

    It depends upon the fraud type. For example, if the buyers’ names on the deed do not match the buyers’ names on the short sale affidavit, fraud occurred and you must report it to Freddie Mac. In addition, you must always keep a copy of the deed in the borrower’s mortgage file in case Freddie Mac requires a File Review.

  2. Will Freddie Mac pursue a deficiency judgment against a borrower who completed a Standard Short Sale?  

    No, if the borrower acted in good faith and in compliance with Freddie Mac’s requirements and all applicable law, Freddie Mac will not pursue the borrower for the entire amount owed under the current mortgage on an approved short sale transaction. However, if the borrower agrees to a promissory note as part of the contribution settlement and fails to meet their obligation, Freddie Mac reserves the right to pursue collections for the balance of the promissory note.

Borrower Relocation Assistance and Servicer Compensatory Fees

  1. If the borrower is eligible for relocation assistance but does not request it, am I still required to offer it?

    Yes, this assistance is provided by Freddie Mac and is intended to help with relocation expenses of all borrowers who meet the eligibility requirements for relocation assistance, regardless of whether or not the borrower requests it.

  2. Can I apply relocation assistance towards the minimum net proceeds amount in order to close the transaction?

    No. If the transaction cost of the relocation assistance is one reason the minimum net proceeds amount cannot be met, then you should work with the parties to increase the sales price or lower other closing costs so the minimum net proceeds will be met. If those negotiations are unsuccessful, you may submit the transaction to Freddie Mac for decisioning.

  3. Are there compensatory fees associated with the Standard Short Sale?

    Not at this time, but Freddie Mac reserves the right to pursue remedies, including indemnification against you, if you have not met the requirements of the Guide.

  4. Will Freddie Mac issue relocation assistance to an eligible borrower who completes a short sale on an investment property?

    No, the relocation assistance is meant to assist with the moving expenses of an eligible borrower who is also the owner-occupant of the mortgaged premises.

  5. The subordinate lien holder will not agree to the short sale unless we agree to not pay the borrower relocation assistance to the borrower. Can they condition their approval like this?

    No, the subordinate lien holder cannot condition their approval upon our payments to the borrower or any other party. The subordinate lien holder must approve the short sale, release its lien, and extinguish its debt in accordance with the Guide in order to receive a payment from Freddie Mac.

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