After exhausting all other options, distressed homeowners often opt to make a short sale. The lender will accept the sale proceeds as payment for the debt even though the homeowner's mortgage balance is less.

A short sale program may be available to homeowners who own an FHA-backed mortgage. It is also known as the Pre-Foreclosure Sales program (PFS). This allows the seller to pay off the mortgage debt in default, even though the property is less than the amount owed.

The Sale Must Be "Arm's-Length," Which Means That All Parties, Including The Agent, Must Not Have Any Relationship With Each Other. HUD Also Has Tiered Net Proceeds Requirements That State:

• The homeowner cannot accept offers for purchase during the first 30 days of the property's listing.

• The offer must be at least 86% of its appraised value within the next 30 days.

• The seller will accept offers for the home up to 84% of its appraised value during the remaining 60 days.

The Seller May Not Make These Concessions To The Buyer:

• Allowances for repairs

• A home warranty costs about $600

• Other than FHA-backed loans, there are discounts

• The lender's title insurance fees must be paid

The Following Are The Eligibility Requirements For HUD PFS:

• The owner must occupy the home. This exception applies to homeowners who are forced to move because of involuntary job transfers, death, or divorce. However, the house must not be rented for more than 18 months.

• The homeowners will need to provide evidence of their inability to repay the mortgage and why they have to leave the house.

• At the sale's closing, the homeowner must not have missed a single mortgage payment for at least 30 days.

The HUD Short Sale Program Has Many Advantages

A homeowner who is underwater on their mortgage may not have much to be hopeful about. However, the HUD Pre-foreclosure Sales program can offer some hope.

Even though the sale proceeds are less than the mortgage amount, they will still satisfy the debt. Therefore, homeowners in states that allow for deficiency judgments should feel at ease knowing that the amount they pay in the future will not be due to them.

HUD can pay up to $3,000 to the seller if the short sale closes in the 90 days following the date of application. The incentive may be reduced if the home takes longer than expected to sell.

The HUD allows you to receive a real estate commission of up to 6%. This means that you don't need to have an agent to represent you. You can also get customary closing costs.

If the buyer has an FHA-backed mortgage, HUD allows him to pay 1% of the buyer's closing costs from the proceeds.

If you feel that you qualify for the HUD Pre-Foreclosure Sales program, get in touch with a HUD-approved.