Machine won't draw the paper in to send the fax
Technically, your machine is jammed. The paper is jamming as it exits the feed area, and enters the machine. Not being specifically familiar with that model, but rather based on experience with other simular machines with like problems, I would say you should look for 3 possible causes...
Most machines have, shortly into the paper path, and generally in the area you're indicating, some sort of sensor switch, whether it be photo-electric, or a mechanically activated toggle, that senses and registers the lead edge of the paper so the machine knows it did feed. This switch could be knocked out of place, or simply dirty, and not sensing the lead edge of the paper within a certain period of time after the machine registers the feed had been actuated.
A second possible cause would be (and you may be able to visually verify this) is that usually, in these types of machines, there is some sort of pressure or "retard" pad/roller in conjunction with the feed roller. If this isn't working right, the machine may be feeding more than one sheet at a time, and becoming jammed in the paper path path area due to "thickness".
A third possible issue could be an unremoved scrap of paper from a previous jam (or a staple/paperclip/piece of rubber-band/or any other foriegn object, as I've seen them all) still remaining in a thin and obscure position of the paper path blocking the paper's progress to the afformentioned switch.
Those are the most likely, but probably not the only possible, causes of the problem you are exoeriencing.