An FHA short sale is called a Pre-Foreclosure Sale, and since October 1, 2025 it runs under HUD Mortgagee Letter 2025-12. You generally need a financial hardship, a loan at least 61 days behind and no workable home-retention option; you then have four months to find a buyer whose offer nets at least 88%, 86% or 84% of the as-is appraised value, depending on how long the home has been marketed. Owner-occupants who complete the sale in good faith can receive up to $3,000, and the deficiency is forgiven.
At a glance
| Current rules | HUD Mortgagee Letter 2025-12, effective October 1, 2025 |
|---|---|
| Minimum delinquency | 61 days or more (Standard Pre-Foreclosure Sale) |
| Marketing period | Four months from approval to participate |
| Minimum net proceeds | 88% (days 1-30), 86% (days 31-60), 84% (days 61-120) of as-is appraised value |
| Owner-occupant compensation | Up to $3,000 |
What is an FHA short sale?
HUD's term for a short sale on an FHA-insured loan is a Pre-Foreclosure Sale, or PFS. Under Handbook 4000.1 as revised by Mortgagee Letter 2025-12, it is a sale that brings in less than the amount owed, in which the lien holders agree to release their liens and forgive the deficiency balance. The general idea, and why any lender agrees to take less, is covered on what a short sale is; this page covers the FHA version.
FHA's rules changed in 2025. Mortgagee Letter 2025-12, dated April 15, 2025, replaced ML 2025-06 and moved the new permanent loss mitigation options up to October 1, 2025. The old Standard Pre-Foreclosure Sale and Standard Deed-in-Lieu expired September 30, 2025, as did FHA's COVID-19 recovery options. Borrowers are now limited to one permanent loss mitigation option every 24 months, up from every 18. HUD has said these changes will be folded into a future update of Handbook 4000.1, so section numbers may move.
There are two versions: the Standard PFS, and a PFS for Servicemembers with orders to move.
Who qualifies for an FHA Pre-Foreclosure Sale?
The Standard PFS is open to both owner-occupants and borrowers who no longer live in the home, and it does not require the servicer to verify your hardship. You still have to meet each of the conditions below on the date the servicer approves you.
A financial hardship
You must indicate a financial hardship that affects your ability to keep up the mortgage. Job loss, reduced income, medical costs, divorce and the death of a borrower are common examples. Describe it truthfully; the servicer relies on what you submit. How to set it out is on writing a hardship letter for a short sale.
At least 61 days behind
The loan must be 61 days or more delinquent, which HUD defines as three or more full monthly payments unpaid, on the date the servicer approves the PFS. A borrower who is current, or only one or two payments behind, does not qualify for the Standard PFS.
No home-retention option that works
You must have used up, or been found ineligible for, all of FHA's permanent home-retention options. In other words, FHA looks at keeping you in the home before it looks at a sale. Those options, and how they compare with selling, are on ways to stop foreclosure in Utah.
Ownership and occupancy
Owner-occupants and non-occupant borrowers can both use the Standard PFS, but the money rules differ, as described below. A property owned by a corporation or partnership needs a HUD variance.
Servicemembers with orders to move
A servicemember with Permanent Change of Station orders to a duty station at least 50 miles away can use the PFS for Servicemembers. The loan must be at least 31 days delinquent when the sale closes.
How an FHA short sale works, step by step
These are the FHA-specific stages. The general paperwork, valuation and negotiation steps are on the short sale process in Utah.
1. Approval to participate
The servicer reviews you for loss mitigation and, if a PFS fits, issues an Approval to Participate on form HUD-90045, along with HUD-90035, the PFS information sheet. The servicer must tell you in writing that PFS transactions are reported to the credit bureaus and will likely affect your ability to get another mortgage and other credit. Your four-month marketing window starts on the approval date.
2. As-is appraisal
The servicer orders an as-is appraisal from an FHA Roster Appraiser. It is valid for 180 days from its effective date, and you, your agent or HUD can ask for a copy. If the as-is value is $75,000 or more below the unpaid principal balance, or less than half of it, the servicer must also get a broker price opinion or automated valuation and then a HUD variance.
3. List the home on the MLS
The home must be listed on the MLS for at least 15 days, counted from the approval date, before offers are evaluated. Until closing you must keep the home in ready-to-show condition and do normal maintenance.
4. Accept an offer that meets the net proceeds floor
The buyer's offer, after allowed costs, has to meet FHA's minimum net proceeds for the stage of marketing (see the table below). All parties sign a PFS Addendum.
5. Contract review and closing
The servicer reviews the signed contract on form HUD-90051 and the closing figures on HUD-90052. You have four months from the approval date to get a signed contract. If you have one by the end of month four but have not closed, HUD gives an automatic two-month extension of the deadline to start foreclosure.
FHA short sale money rules
FHA measures every offer against the as-is appraised value. Net sale proceeds are the price minus reasonable and customary closing costs and any outstanding Partial Claim or Payment Supplement balances.
| Days of marketing | Minimum net proceeds (share of as-is value) |
|---|---|
| Days 1-30 | 88% |
| Days 31-60 | 86% |
| Days 61-120 | 84% |
Meeting the floor is not a guarantee. The servicer may still deny or delay an offer at 84% if more marketing would likely bring a higher price.
Costs FHA allows and does not allow
Allowed costs include commission of up to 6%, prorated taxes, customary seller closing costs, the owner-occupant compensation, up to $1,500 for junior liens for non-occupant borrowers, and up to 1% of the buyer's first mortgage if the buyer uses FHA financing. Repair allowances, home warranty fees and third-party short sale negotiation fees are not allowed. Be cautious of anyone who asks for an upfront fee to arrange an FHA short sale.
The $3,000 owner-occupant compensation
HUD offers owner-occupants who act in good faith and complete the sale up to $3,000. It is paid from the sale proceeds, itemized on the Closing Disclosure, and can be used to clear liens (including PACE liens), to pay sale costs HUD does not cover, or to move. ML 2025-06 had raised the amount to $7,500, but ML 2025-12 reversed that increase, so $3,000 is the figure as of 2026. Relocation amounts on other loan types are compared on short sale pros, cons and relocation money.
Second mortgages and other liens
You must pay off or get a release of every other lien. An owner-occupant can put the $3,000 toward that. A non-occupant borrower can use up to an extra $1,500 of sale proceeds if no other source is available. Any outstanding FHA Partial Claim or Payment Supplement balance must be paid in full from the proceeds.
The deficiency
FHA's definition of a PFS includes the lien holders forgiving the deficiency. HUD also says that if a foreclosure happens after you took part in the PFS in good faith and it did not succeed, neither the lender nor HUD will pursue a deficiency judgment. Forgiven debt can still be taxable; see taxes on forgiven mortgage debt.
Example: an FHA short sale on a Herriman home worth $601,499
Example only, not a real sale or an approval. The home's as-is appraised value equals Herriman's typical value, $601,499 (Zillow's typical home value, August 2026), and the FHA loan's unpaid balance is $640,000. The gap is about $38,500, well under the $75,000 that would trigger a second valuation.
| Marketing stage | Minimum net proceeds |
|---|---|
| Days 1-30 (88%) | $529,319 |
| Days 31-60 (86%) | $517,289 |
| Days 61-120 (84%) | $505,259 |
An owner-occupant receives a $560,000 offer. Commission at 6% is $33,600, the $3,000 compensation is an allowed cost, and other seller closing costs come to $6,000 in this illustration. Net proceeds are $517,400. That falls short of the 88% floor in the first 30 days, but meets the 86% floor from day 31. If the servicer approves, the lender receives about $517,400 and the remaining balance of roughly $122,600 is forgiven. Whether to list at all, or sell another way, is compared on ways to sell a Herriman home when you owe more than it is worth.
Buying again after an FHA short sale
HUD's Handbook 4000.1 generally bars a new FHA loan for three years after a short sale, counted from the date title transferred. The rule does not apply if you made every mortgage payment within the month due, and paid installment debts on time, for the 12 months before the short sale. A seller who qualified for a Standard PFS by being 61 or more days behind will generally not meet that exception and should plan on the three-year wait unless they have documented extenuating circumstances. HUD's wait after a foreclosure or deed in lieu is also three years. The full comparison by loan type is on short sale credit effects and waiting periods.
FHA short sale compared with other options
| Option | FHA requirement | Money to the borrower | Deficiency |
|---|---|---|---|
| Pre-Foreclosure Sale | 61+ days behind, hardship, retention options exhausted | Up to $3,000 (owner-occupant) | Forgiven |
| Deed in lieu | Must have tried a PFS first; 61+ days behind | Up to $3,000 relocation if you move out | Not pursued if you comply |
| Foreclosure | None | Possible cash for keys, up to $3,000, after the sale | Not pursued after a good-faith PFS attempt |
An FHA deed in lieu is only available after a PFS attempt, so the short sale usually comes first. The trade-offs between the two are on deed in lieu vs short sale. If foreclosure goes ahead, the servicer may offer occupants up to $3,000 per dwelling to move out within 30 days after the first notice to quit.
What to confirm before you apply for an FHA short sale
The FHA rules only help if your loan is actually FHA-insured and your application reaches the servicer in time. A few checks at the start avoid most of the delays later.
Confirm who insures the loan
Your servicer collects the payments, but the rules come from whoever insures or owns the loan. Ask the servicer in writing whether your loan is FHA-insured. If it is a VA, Fannie Mae, Freddie Mac or private loan, different short sale rules and relocation amounts apply; the VA version is on short sales on VA loans.
Send a complete application early
Federal servicing rules (12 CFR 1024.41) protect a complete loss mitigation application. If the servicer receives it more than 37 days before a foreclosure sale, it must evaluate you for all available options and answer in writing within 30 days, and it cannot hold the sale while the application is being resolved. These rules do not require the servicer to offer any particular option, but they give a short sale time to work. Keep proof of the date your application arrived.
Get every deadline in writing
Ask for the approval to participate date, the four-month contract deadline, and the appraisal's effective date, since it expires after 180 days. If an offer comes in near the end of month four, ask how the two-month extension applies.
Avoid paid helpers and fee schemes
FHA does not allow third-party short sale negotiation fees to be paid from the sale. In Utah, paid help preventing a foreclosure that involves transferring title to the home is treated as foreclosure rescue, which falls within licensed real estate activity (Utah Code 61-2f-102). Utah rules also bar a licensee from having a short sale seller sign a document letting the licensee put a lien on the property, and from charging a fee equal to the gap between the lender-approved price and the amount needed to close (Utah Admin. Code R162-2f-401b). Check any helper's license before you sign anything.
Utah notes for FHA short sales
Most Herriman FHA loans are secured by a Utah trust deed, so a default leads to a non-judicial trustee sale. The notice of default starts a wait of at least three months before the notice of sale (Utah Code 57-1-24), and HUD says a four-month PFS marketing period cannot begin after the first legal action to start foreclosure. Ask your servicer early how that applies once a notice of default is recorded on your loan. The trustee-sale clock is on how Utah foreclosure works.
Utah also has its own deficiency deadlines. Under Utah Code 78B-2-313, a lender's suit for a short sale deficiency on a single-family home is barred unless filed within three months after the reconveyance is recorded, except for fraud or a signed agreement to pay part of the deficiency. After a trustee sale, Utah Code 57-1-32 gives three months and caps any judgment at the debt minus fair market value. FHA's own rule forgives the deficiency in a completed PFS, so read the approval for any separate agreement before you sign. Forgiven debt that is taxable federally is generally taxable in Utah too, at 4.45% for 2026 (Utah Code 59-10-104).
Before you list, ask your servicer to confirm in writing that your loan is FHA-insured, which option it is reviewing you for, and your PFS deadlines. A HUD-approved housing counselor, found through the CFPB's Find a Housing Counselor tool, can review the offer with you before you sign. This page explains the rules, not whether your servicer will approve your sale.
Frequently asked questions
What is a short sale to avoid foreclosure on an FHA loan?
It is FHA's Pre-Foreclosure Sale: you sell the home for less than you owe, the lien holders release their liens, and the deficiency is forgiven. Under ML 2025-12, effective October 1, 2025, you generally need a hardship, a loan at least 61 days behind and no workable home-retention option, and you have four months to find a buyer.
Can I sell my home with a HUD partial claim?
Yes, but the Partial Claim must be paid. In an FHA Pre-Foreclosure Sale, outstanding Partial Claim and Payment Supplement balances must be paid in full from the sale proceeds, and FHA subtracts them when it calculates net proceeds. In a regular sale with enough equity, ask your servicer for a payoff that includes the partial claim balance.
What is a partial claim mortgage?
It is a way of handling past-due payments with a separate balance instead of a lump sum. Under VA's program launched in 2026, VA covers the past-due amount as an interest-free balance repaid when the loan is paid off or the home is sold. FHA loans can carry Partial Claim balances too, and they must be paid in full from short sale proceeds. Ask your servicer for your terms.
How many years after a foreclosure can you get an FHA loan?
HUD's Handbook 4000.1 generally requires three years after a foreclosure or deed in lieu, counted from the date title transferred or the deed in lieu date. An exception is possible for documented extenuating circumstances beyond your control with reestablished good credit. Divorce generally does not qualify. After an FHA short sale the standard wait is also three years.
Did FHA's foreclosure and short sale rules change in 2025?
Yes. HUD's Mortgagee Letter 2025-12 ended FHA's COVID-19 recovery options on September 30, 2025, started new permanent loss mitigation options on October 1, 2025, limited borrowers to one permanent option every 24 months, and kept short sale compensation at $3,000 instead of the $7,500 announced earlier in 2025.
How much does FHA pay a seller in a short sale?
HUD offers owner-occupants who act in good faith and complete a Pre-Foreclosure Sale up to $3,000, paid from the sale proceeds. It can go toward clearing liens, sale costs HUD does not cover, or moving. Non-occupant borrowers do not receive it, though they may use up to $1,500 of proceeds toward junior liens.
Sources
- HUD: Mortgagee Letter 2025-12, Tightening and Expediting Implementation of the New Permanent Loss Mitigation Options (effective October 1, 2025)
- HUD: Mortgagee Letter 2025-14 (June 3, 2025)
- HUD: Handbook 4000.1, FHA Single Family Housing Policy Handbook (issued May 20, 2024)
- VA Home Loans: VA Partial Claims Program FAQs for Servicers (2026)
- Utah Legislature: Utah Code 57-1-24
- Utah Legislature: Utah Code 57-1-32
- Utah Legislature: Utah Code 78B-2-313
- Utah Legislature: Utah Code 59-10-104 (effective January 1, 2026)
- eCFR: 12 CFR 1024.41 Loss mitigation procedures
- Utah Legislature: Utah Code 61-2f-102 (effective May 6, 2026)
- Cornell LII (Utah Admin. Code): R162-2f-401b
- CFPB: Find a housing counselor
- Zillow Research: Home Value Index, Herriman city (August 2026)