Inside the FHA & VA Short Sale Playbook: Timelines, Forms, and Traps to Avoid
For most agents, short sales already feel like an obstacle course. But when that loan is FHA or VA-backed, the game changes completely. You’re not just dealing with a lender anymore — you’re working within a federally regulated process that has its own rulebook, timelines, and forms. And if you miss a single step, your deal can grind to a halt before it ever reaches the closing table.
At Crisp Short Sales, we’ve handled hundreds of FHA and VA short sales nationwide. Here’s what every agent and homeowner should know before diving into one of these deals — and how to make the process smooth, fast, and predictable.
1. FHA Short Sales: The Pre-Foreclosure Sale Program
The FHA short sale process operates under HUD’s Pre-Foreclosure Sale (PFS) Program — a structured system that dictates nearly everything, from how the property is priced to when it can close.
Before a seller can even list the property, the servicer must determine eligibility and issue an Approval to Participate (ATP). Without that ATP letter, the sale can’t move forward.
Key differences from conventional short sales:
- The property must be owner-occupied (or recently vacated for hardship reasons).
- HUD requires its own independent as-is appraisal to establish value — not the lender’s opinion.
- There’s usually a 15- to 30-day marketing window before HUD will even review an offer.
- The net-to-HUD requirement is strict; there’s no negotiating below the minimum allowed.
If the offer doesn’t meet HUD’s formula, the servicer’s hands are tied. That’s where experienced short sale processors come in — we know how to dispute valuations, document condition issues, and get the right value accepted before the file stalls.
Learn more about how we handle these challenges on our short sale negotiation page.
2. VA Short Sales: The Compromise Sale Program
VA loans run under an entirely different system called the Compromise Sale Program, overseen by the Department of Veterans Affairs. The VA is generally more flexible about timelines but just as strict about documentation.
Here’s how it works:
- The servicer submits the offer to VA for final review — yes, VA must sign off before approval.
- The VA requires its own Net Value analysis based on an internal appraisal.
- The seller must show a clear financial hardship, and the file often requires verification of all assets and income.
- The VA may pay off certain title or lien costs to facilitate closing, which can actually make these short sales easier to close than conventional ones.
Still, delays can occur when servicers fail to forward complete packages or when VA’s Net Value formula changes midstream. That’s why having a team familiar with VA-specific guidelines and escalation channels makes all the difference.
3. Common Traps (and How to Avoid Them)
1. Missing the ATP or Net Value Expiration: These approvals have short shelf lives. If they expire, you’re starting over.
2. Incorrect buyer addendums: Both HUD and VA have their own short sale addendum forms, and lenders won’t substitute.
3. Assuming you can negotiate fees later: Neither HUD nor VA allows “side agreements” or last-minute fee adjustments. The HUD-1 or CD must match the approval exactly.
4. Not disputing value early enough: Once the government’s value is locked in, it’s nearly impossible to change it without a full re-review — which can take weeks.
4. Why Experience Matters
An FHA or VA short sale isn’t just about paperwork — it’s about precision. You’re dealing with multiple layers of oversight: the servicer, the investor (HUD or VA), and sometimes even an asset management company.
Our team at Crisp Short Sales handles all of this behind the scenes — from valuation disputes to escalation calls — so agents and homeowners can focus on the deal, not the red tape.
If you’ve got a government-backed listing that needs help, start here: Start Your Short Sale Today.
Final Thought
FHA and VA short sales might look intimidating, but when you know the playbook, they can actually be the most predictable of all. Follow the rules, stay ahead of deadlines, and let experienced hands guide the process — and you’ll be cashing commission checks instead of chasing approvals.