Quick answer: A short sale runs in eight steps: call your servicer and authorize your agent, price and list, accept an offer subject to lender approval, send a complete package with your hardship letter, let the lender value the home, negotiate, get the approval letter, and close on its terms. In my two recent Columbia files, approval came 63 days after going live in one and 152 days after listing in the other.
Most people who call me about a short sale already know what one is. What they want is the order of operations. Who do I call first? What do I send? When does somebody finally say yes?
This is that list, in the order it happens, from two Columbia short sales I handled in the past year and from HUD's and Fannie Mae's rulebooks. If you're still deciding whether a short sale is even the right move, start with your options when you owe more than the home is worth. The big picture is in my Tennessee short sale guide.
Step 1: Call your servicer and put your agent on the account
Your servicer is the company on your monthly statement. Call the number for loss mitigation, say you're considering a short sale, and ask two questions: what kind of loan is this, and who owns or insures it? FHA, Fannie Mae, Freddie Mac, VA and a bank's own portfolio loans each run on their own rulebook, and that answer decides most of what follows.
Then sign the servicer's third-party authorization so they'll talk to your agent. With Cameron S., I was at his house the day after he called me, and the three of us got his servicer's loss mitigation line on the phone together so they'd put me on the file.
Ask for the application while you're on the line. Under federal rules, if a servicer receives your loss mitigation application 45 days or more before a foreclosure sale, it has five business days to tell you in writing whether the application is complete and what's missing.
On an FHA loan, the servicer has to look at the options that keep you in the house before it approves a sale, and a standard FHA short sale requires the loan to be at least 61 days past due on the approval date. Fannie Mae's guide, by contrast, lets a servicer evaluate a borrower who's current or less than 90 days behind, with a complete package. Don't skip payments on purpose to qualify for anything. Ask your servicer and a HUD-approved housing counselor what applies to your loan.
Step 2: Price it and list it
The lender is going to value the home on its own, so a wishful price only costs you time. On an FHA short sale, HUD requires the list price to be no less than the servicer's as-is appraised value.
Expect one extra page in your listing agreement. HUD requires a clause letting you cancel without owing a commission if the home ends up going to the lender or the mortgage insurer, and both of my servicers asked for it before approval.
Cameron's house went live nine days after his first call.
Step 3: Accept an offer subject to lender approval
A buyer can sign a contract, but the lender has the final say on the numbers, so the contract makes the lender's approval a condition. The sale has to be arm's length: no relationship between buyer and seller and no side agreements. On FHA, everyone who signs the contract also signs HUD's Pre-Foreclosure Sale Addendum.
Keep talking to other buyers. Cameron's first buyer walked after the inspection. I had the next buyer's agent on the phone the same day and a new contract at the same price three days later.
Step 4: Send a complete short sale package
This is the step that stalls files. The second servicer I worked with wouldn't open the file until every document was in, so we built the whole package within a week of the offer.
The servicers on my two files asked for:
- The signed purchase contract
- A borrower financial worksheet (on Fannie Mae and Freddie Mac loans, usually Form 710, the Mortgage Assistance Application)
- The last 30 days of pay stubs
- Two months of bank statements
- The listing agreement
- A preliminary settlement statement
- The third-party authorization
Your servicer may want more or less. Ask for its list in writing and send everything at once.
The net sheet the lender reviews
The preliminary settlement statement is the lender's net sheet. It shows the price, the payoff on every loan, the commission, prorated taxes, HOA dues, title and closing fees, and any help toward the buyer's costs. The bottom line is what the lender actually nets.
The lender reads every line. On FHA, the net has to clear HUD's minimum, measured against the as-is appraisal, and HUD limits which costs can come out of the sale. The percentages are in my Tennessee short sale guide. In both of my files, the servicer required the seller's line to read zero.
The short sale hardship letter
Form 710 asks when your hardship started, whether it's short-term or long-term, and what kind it is: unemployment, reduced income, higher housing costs, disaster, disability or illness, divorce or separation, a death, a distant job transfer, or "other." If yours doesn't fit a box, Freddie Mac tells servicers to ask for a written explanation and supporting documents. Some servicers want a separate letter and some take the form. Ask which.
What a good hardship letter says:
- What happened, in plain words, and when it started
- Whether it's temporary or permanent, and why keeping the house doesn't work now
- What you've already tried, including any modification you were offered and why you declined it
- That you're asking the lender to approve the sale to the buyer in your contract
- Numbers that match your worksheet, pay stubs and bank statements
Keep it to one page, then sign and date it.
What it leaves out:
- Anything your documents won't back up. The application has you certify that the information is truthful and warns that knowingly submitting false information may violate federal law.
- Medical detail. The form says detailed medical information isn't required for a disability or illness hardship.
- Venting about the lender or the market. The person reading it is deciding your file.
- Any arrangement with the buyer outside the contract, like a rent-back or a promise to sell it back to you.
Step 5: The lender values the home
On an FHA loan, the servicer orders an as-is appraisal from an FHA roster appraiser, and it's good for 180 days. On a Fannie Mae loan, the servicer places a valuation order directly with Fannie Mae. Other lenders may use an appraisal or a broker price opinion, called a BPO, which is a value estimate from a local agent.
In Cameron's file I asked the servicer to get the appraisal ordered before we even had an offer.
Step 6: Review and negotiation
On FHA, once the servicer has a signed contract, HUD gives it five business days to send you the sales contract review form, HUD-90051. On a Fannie Mae loan, the servicer must acknowledge the offer within five business days and answer in writing within 30 calendar days of getting a complete package and the offer: approve, counter or decline. A revised offer gets a decision within ten business days.
Expect at least one round. In my second file, the numbers came in about $1,500 short of HUD's minimum on Christmas Eve, and the buyer's agent and I cut our commission to close the gap. A second mortgage or HELOC needs its own sign-off. Fannie Mae's guide also allows the servicer to ask a seller with enough savings for a cash contribution toward the shortfall, which it can lower or waive.
Step 7: Read the short sale approval letter like a contract
This letter controls your file. Check:
- The buyer and price match your contract exactly
- The amount the lender accepts and the costs it allows
- The closing deadline. Fannie Mae's guide says 60 calendar days from approval unless Fannie extends it.
- What happens to the rest of the balance. Fannie's guide requires a release on loans without mortgage insurance, and in my second file the clear to close came with an executed deficiency waiver.
- Any contribution the lender expects from you
- Any relocation money. HUD offers FHA owner-occupants who close in good faith up to $3,000, and Fannie Mae's guide sets $7,500 for a principal residence, each with conditions.
If any number changes, the letter gets reissued. In my second file, the title company caught a commission mismatch the day before closing and the approval had to be reissued on closing day. Have a Tennessee real estate attorney read the letter, especially the balance language.
Step 8: Closing
The title company prepares a final statement that matches the approval to the dollar, you sign, and the lender releases its lien. Both of my sellers brought $0.
Two things can follow you after closing. HUD makes servicers warn you that a short sale is reported to the credit bureaus. And forgiven debt can be taxable. The IRS says canceled debt is generally income unless an exclusion applies, and its 2025 Publication 4681 says the main home exclusion doesn't cover discharges completed, or discharge agreements entered into, after December 31, 2025. Talk to a tax professional before you sign. Credit and the wait to buy again are covered in Short Sale vs Foreclosure in Tennessee.
How long each step takes
| Stretch | My two Columbia files | The rulebook |
|---|---|---|
| First call to live | 9 days (Cameron) | |
| Live to first contract | 35 days and 63 days | FHA: at least 15 days in the MLS before offers are evaluated |
| Contract to complete package | Within a week (second file) | Reg X: 5 business days to say what's missing |
| Listing to approval | 63 days after going live, and 152 days after listing | Fannie Mae: 30 calendar days for a decision. FHA: HUD-90051 within 5 business days of the contract |
| Approval to closing | 55 days and 2 days | Fannie Mae: 60 calendar days unless extended |
Two files can't give you an average, but they do show where the time goes. The day-by-day breakdown is in How Long Does a Short Sale Take in Tennessee?
If you're behind and upside down, send me your latest mortgage statement and I'll tell you which rulebook your loan runs on and what step one looks like for you. DM, text, or call me at 615-392-1186.
Header photo: brick storefronts on the Public Square, Columbia, by Antony-22, CC BY-SA 4.0, via Wikimedia Commons. Resized.
Frequently Asked Questions
What are the steps in a short sale?
Call your servicer's loss mitigation department and authorize your agent to talk to them, price and list the home, accept an offer subject to lender approval, send the lender a complete package, let the lender value the home, negotiate the numbers, get a written approval letter, and close on the approved terms.
What goes in a short sale package?
The servicers on my files asked for the signed purchase contract, a borrower financial worksheet, the last 30 days of pay stubs, two months of bank statements, the listing agreement, a preliminary settlement statement and a third-party authorization. On a Fannie Mae or Freddie Mac loan, the financial worksheet is usually Form 710, the Mortgage Assistance Application, which includes a hardship section.
What should a short sale hardship letter say?
What happened, when it started, whether it's short-term or permanent, and why you can't keep the home. Keep it to one page, keep the numbers consistent with your documents, sign and date it. Leave out anything you can't back up, and never mention a side deal with the buyer.
Does a hardship letter need medical details?
No. The Fannie Mae and Freddie Mac Mortgage Assistance Application says detailed medical information isn't required for a disability or serious illness hardship. A written statement or other documentation is enough.
How long does short sale approval take?
On a Fannie Mae loan, the servicer has to answer in writing within 30 calendar days of receiving a complete package and an offer. In practice it varies. My two recent Columbia files reached approval 63 days after going live and 152 days after listing.
What should I check in a short sale approval letter?
The buyer and price, the amount the lender accepts, which costs it allows, the closing deadline, whether the remaining balance is forgiven, and whether it asks you for any contribution. If anything in the deal changes, the letter has to be reissued.
Who orders the appraisal in a short sale?
The lender does. On an FHA loan, the servicer orders an as-is appraisal from an FHA roster appraiser. On a Fannie Mae loan, the servicer places a valuation order directly with Fannie Mae. Other lenders may use an appraisal or a broker price opinion.
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