The U.S. Treasury is trying to make short sale more attractive to lenders and homeowners through the “Home Affordable Foreclosure Alternatives Program” or “HAFA” along with the updated HAFA changes for 2011 and HAFA changes for June 2012 supplemental directive.
What Treasury is trying to do is help streamline the short sale process by suggesting guidelines to the participating lenders. That’s “suggestions” and “guidelines”. That does not equal “requirements” in the way I read it.
Here is a summary of the program, who is eligible, and what you might expect to change if you do qualify for the HAFA program. Remember, I am condensing here and pointing out what might be important to you, the homeowner, as it relates to short sales. There are many details, requirements and forms that make up this new program.
ARE YOU ELIGIBLE?
You might be eligible for HAFA if your lender participates in the Home Affordable Modification Program (HAMP), and your mortgage is not underwritten by Fannie Mae or Freddie Mac. HAMP offers you the opportunity for assistance by lowering your payments or delaying payments to keep you in your home. You must meet the HAMP requirements as follows, to be part of HAFA, whether or not you choose a modification. These qualifications are:
1) You have missed payments or are about to default
2) You got your primary mortgage before Jan. 1, 2009
3) You are a natural person (not a corporation, partnership, LLC etc)
4) Your mortgage is for a one- to four- unit residential property.
5) Your property has not been condemned.
6) Your current unpaid principal balance is less than or equal to
$729,750 for a one-unit property
$934,200 for a two-unit property
$1,129,250 for a three-unit property
$1,403,400 for a four-unit property
7) You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
The HAFA Supplemental Directive states that the servicers (your lenders) have the “option to determine the extent to which short sales or deeds-in-lieu will be offered”.
Expanding on that, HAFA states that a participating lender must follow its investor guidelines to create their own policy, with criteria for your eligibility to include: how cooperative and “motivated” you are, the amount of the loss on your mortgage, and local market conditions, among other things. In addition, HAFA states that it is up to the servicer and investor to decide if allowing you to be in this special short sale program is in their best interest. That tells me they have a lot of leeway in deciding if you will benefit from HAFA at all.
THE GOOD NEWS if you get a short sale through this program, there can be no deficiency judgment later! That will help many leery Bank of America short sale sellers, whose approval letters reference the right to seek a deficiency in the future. More good news- your lender may not ask you for a promissory note or a cash contribution if they participate in HAFA and you do a short sale. More “positives”…
POSITVE: If you are eligible for this program, and your lender participates, you must be given the chance to do a short sale or deed-in-lieu prior to the lender foreclosing.
POSITIVE: Your lender may determine the acceptable net from your anticipated short sale prior to you participating in the program. This should save time versus a typical short sale, where the lender determines if a contract is acceptable after it is submitted for consideration. The minimum proceeds will be stated in terms of actual dollar amount, percentage of market value or percentage of your list price. In practice, many lenders are choosing not to determine acceptable value prior to receiving a contract. That is a positive, as many markets are still declining, and market value changes continually.
POSITIVE: Your lender will state what closing costs they will pay for the sale in advance. This will save contracts where the buyer asks for too much in closing costs- no wasted negotiating.POSITIVE: You will receive $3000 relocation incentive upon closing your short sale if you are an occupant at time of closing (this is a June 2012 HAFA program change). The incentive could otherwise go to the tenant or non-borrower dependent living in the property (who must vacate at closing). There is no incentive if the property is vacant.
*** OTHER THINGS you need to know:
You cannot remain in the home as a tenant after closing.
You must not be related to the buyer (arms length).
You cannot earn a real estate commission if you are a licensee and sell the home yourself.
You may be required to make payments deemed “affordable” by HAFA until your property is sold. This is based on a calculation of your income and expenses.
You must maintain the property and pay association dues until it is sold.
The servicer will pay your junior lienholder up to $8500 (this is a June 2012 HAFA program change) to complete the short sale, but YOU must take care of other impediments to selling, for example, an IRS tax lien or a judgment which might affect your sale. Your senior lienholder gets a monetary incentive when your junior lienholder waives the right to a future deficiency. This part of the program “may” inspire better terms from your second mortgage holder. NOTE: HAFA does not state this as a requirement, though, so you may still have a responsibility to pay your junior lienholder cash or a promissory note if they agree to the short sale!
If you have mortgage insurance (MI) on your note, the MI company must agree to waive its right to a cash contribution from you or note or you won’t qualify for HAFA.
MORE PROCEDURES: When you receive an offer on your property, you will have three business days, with my assistance, to get a copy of the contract, buyer pre-approval, and junior lien documentation to your lender. If you are using the standard HAFA program with a pre-approved net price (SSA), you should receive an approval or rejection with 10 business days, or about three weeks of receipt. However, if you have not gone through the HAMP modification program and standard SSA (sorry I am throwing in acronyms again), then your approval time will be lengthened. In this situation (alternate RASS), the program requires 14 more days to allow you to decide if you want a modification (well, of course at this point you don’t or you would have already done so, right), and for you to provide all the financial documentation necessary.
Finally, don’t expect to get off the hook with credit reporting or tax obligations from your short sale. Even with HAFA, your short sale will be reported “account paid in full for less than full balance” and you should consult with an accountant to determine any tax liabilities from your cancelled debt.
There is a lot to the HAFA program, which started in April 2010 and is extended until December 31, 2013, with required closing through September 30, 2014. If HAFA is not for you, there are still many options available.
Read about the HAFA form requirements (even more than a regular short sale!)
Here is the Bank of America HAFA Eligibility FAQ
Call me at 850-650-7883 ext 204 or email firstname.lastname@example.org for help with HAFA with all lenders.