Home Affordable Foreclosure Alternatives Program
HAFA Government Short Sale Program
If you are a struggling homeowner who is experiencing some kind of financial hardship and can no longer afford your mortgage payments, then the Home Affordable Foreclosure Alternatives Program may just be for you. The HAFA program makes available options to avoid a foreclosure as well as offer cash back incentives to homeowners, servicers and investors to move forward with a short sale in order to avoid foreclosure. The U.S. Treasury conducted these incentives to protect the Housing industry.
During a short sale, the lender will give the homeowner permission to sell the property for less than the amount owed on the mortgage loans. In order to qualify, the lender will ask you to provide proof of your hardship and make up what is called a short sale package. The HAFA short sale will allow homeowners to be free of all debt on the first lien mortgage, while also becoming eligible for $3,000 Cash Back to help with relocation expenses.
Short sales are becoming increasingly popular because of its ability to help a homeowner overcome their financial difficulty, in their home at least. Choosing a short sale versus a foreclosure is typically the most reasonable path to a fulfilling future. When it comes to short sales, the homeowner must be aware that there is a difference between a traditional short sale and the HAFA short sale program.
HAFA Short Sale Program-
●Have a loan balance under $729,750
●Monthly mortgage payments must be greater than 31% of monthly income
●First mortgage originated before 01/01/2009
Traditional Short Sale- (2 basic qualifications)
●Financial hardship (often varies from lender to lender)
●Proof of lack of funds / Insolvency
Of course, to qualify for any short sale, a borrower must owe more than the value of their property or be in a position where they do not have needed capital to bring to closing.
Traditional Short Sale VS the HAFA short sale program
●A traditional short sale starts after the property is listed and an offer is given. The HAFA short sale typically starts before the property is listed.
●In a traditional short sale the offer begins the short sale process and all documents that were asked to be provided by the lender must be completed, once all of the proper paperwork in turned into the lender, reviewing and a decision will follow. The HAFA short sale program works like the traditional short sale when it comes to a timeline on when to expect a decision, however with the HAFA short sale, if an offer is put on the property, you will typically receive a decision within 10 days.
●In a traditional short sale the investor may demand cash or a promissory note; they may also maintain the right to pursue a deficiency judgment. In the HAFA short sale, the homeowner can be reassured that they will not be asked to produce a promissory note, cash and their lender will not pursue the homeowner for a deficiency judgment.
There is no difference between the HAFA short sale and the traditional short sale when it comes to a homeowner’s credit; however it is less than a foreclosure.
HAFA Short Sale Incentives
●Borrowers will receive $3,000 at the end of the short sale to help with relocation expenses.
●Servicers will receive $1,500 after a successful short sale.
●Investors will receive a max of $2,000 for overheads to second position lean holders. Investors will also receive $1 for every $3 spent to release junior liens up to 6% with a maximum of $6,000.
It is very important to keep in mind that the short sale must be measured in “arms length”, which means the borrower may not sell the property to a relative or anyone else they are close too. The Short Sale Specialist Network is greatly familiar with a HAFA short sale versus the traditional short sale because of their knowledge, experience, and skill in short sales. It takes true experience in order to successfully complete a traditional short sale or the HAFA short sale.
Ask a local HAFA Program short sale specialist!
Below is complete information on the HAFA program and the entire process. This is not a simple process to follow for those not properly trained. Contact us to speak with a certified HAFA Program specialist to offer no cost assistance to you
· Went into effect on April 5, 2010.
· Does not apply to FHA or VA loans.
· Applies to 1st lien holders (non GSE mortgages).
o Government Sponsored Enterprises (GSE) has their own set of guidelines regarding HAFA.
· Provides alternatives for HAMP eligible borrowers who were unsuccessful in past programs.
o These borrowers’ financial and hardship information that has already been verified through HAMP can be used, eliminating the need for an additional analysis.
· Processes financial information through HAMP.
· Offers incentives to borrowers, servicers, and investors.
· Limits the amount of time a lender is given to respond to the short sale offer.
· Requires that the lender waive their right to pursue a deficiency judgment.
· Limits the claims made by subordinate lenders.
· Does NOT require that a borrower’s financial information is verified.
· Allows payment to subordinate mortgage/lien holders.
· Implements alternative deed-in-lieu programs.
· Expires on December 31, 2012.
· The loan must be the first mortgage.
· The loan must have originated before January 1, 2009.
· The borrower does NOT have to be in default.
· The unpaid balance must be less than or equal to $729,750.
o This amount can be exceeded in some cases for two- to four-unit dwellings.
· The property must be, or recently was, the borrower’s primary residence.
o If the property has been vacant or rented for 12 months or less prior to the date of the SSA, RASS, or DIL Agreement, it is still eligible for HAFA.
o The borrower must prove the property was their principal residence prior to relocation and that they have not purchased a one- to four-unit property within the 12 month range.
o The borrower’s reason for relocation does NOT have to be job related.
o There is NO minimum distance requirement for the relocation.
· Financial incentives are given to borrowers, lenders, and servicers.
o Borrowers receive $3,000 to go towards relocation costs. This is deducted from the gross sale proceeds at closing.
o Servicers receive $1,500 to cover administrative and processing costs.
o Investors are given up to $2,000 for allowing a portion of the short sale proceeds (no more than $6,000) to be distributed to subordinate lien holders.
§ In order to receive this incentive, an investor must agree to waive all future claims against the borrower.
§ For every $3 an investor pays to secure a release of a subordinate lien (up to $6,000), the investor is given $1, up to a maximum of $2,000. Therefore, if the investor decides a subordinate lien holder will be paid $6,000, that investor will receive $2,000 in incentives.
§ The servicer, on behalf of the investor, will determine the amount or percentage of the unpaid principal balance of the lien that will be paid to each subordinate lien holder, in order of priority, up to the $6,000 aggregate cap. How these subordinate lien holders will be paid should be included in the servicer’s HAFA Policy.
· Prior to the property’s listing, the borrower can receive pre-approved short sale terms.
· The borrower is not liable for the debt that is forgiven at any time in the future.
· The servicer cannot charge the borrower for processing fees of any kind and is required to pay all out-of-pocket expenses.
· Foreclosure is avoided, which in most cases is an advantage to all parties.
· Depending upon the lender, additional borrower incentives may be available
Typcial HAFA Timeline
A written policy must be developed by the servicer which describes the basis on which HAFA will be offered to borrowers. It may include a description of the loss involved, local market conditions, the borrower’s motivation, and the timing of pending foreclosure actions.
The servicer must diligently attempt to inform the borrower, in writing, of the availability of a short sale or deed-in-lieu. Borrowers are given 14 calendar days after the solicitation to contact the servicer with their interest in these foreclosure alternatives. After 14 days, the servicer has no obligation to extend the HAFA offer.
Potentially eligible borrowers must be considered for HAFA before the loan is referred to foreclosure or before the servicer allows a pending foreclosure to be completed. Borrowers may not be solicited for HAFA until after they are evaluated for a HAMP modification. Borrowers must be considered for loan modification or retention programs offered by the servicer before HAFA evaluation.
When a borrower who has not previously been evaluated for HAMP requests a short sale or DIL, and the servicer determines that the borrower meets the HAMP eligibility requirements and will be solicited for HAFA, the servicer must notify verbally or in writing of the availability of HAMP and allow the borrower 14 calendar days to contact the servicer by verbal or written communication from the date of the notification and request consideration for HAMP. This notification can be given simultaneously with the servicer’s consideration of the borrower for HAFA.
Servicers may re-evaluate borrowers who were previously ineligible for HAFA (before the December 28, 2010 update).
Possible HAMP eligible borrowers must be considered by servicers for HAFA within 30 days of the date the borrower:
· Cannot qualify for a trial loan modification.
· Did not successfully complete the trial loan modification.
· Missed two or more payments consecutively during the trial modification process.
· Requested a short sale or deed-in-lieu of foreclosure.
The servicer issues two documents:
· Short Sale Agreement (SSA)
· Request for Approval of Short Sale (RASS)
The servicer can send these documents either proactively or at the request of the borrower.
Short Sale Agreement (SSA)
· If a solicited borrower shows an interest in a short sale, the servicer has 30 calendar days to fill out and send a Short Sale Agreement to the borrower.
· If a borrower that has not been solicited requests HAFA consideration, the servicer must determine the borrower’s eligibility. If eligible, the servicer has 30 calendar days from the borrower’s request to complete and send an SSA to the borrower.
· The borrower then has 14 calendar days to sign and return the SSA, along with their real estate listing agreement and any information about subordinate liens.
· The real estate broker must also sign the SSA and the borrower must be given a period of 120 calendar days to sell the home. In some cases, this time limit can be extended up to 12 months of the borrower agrees.
Request for Approval of Short Sale (RASS)
After receiving an executed sales contract, the borrower or their real estate agent has 3 business days to complete and submit a Request for Approval of Short Sale (RASS) to the servicer. This should include:
· A copy of the sale contract and all addenda
· Buyer’s pre-approval letter or proof of funds
· Information on the status of subordinate liens or negotiations with subordinate lien holders.
Alternative Request for Approval of Short Sale (Alternative RASS)
If the borrower has an executed sales contract and requests the servicer to approve a short sale under HAFA before an SSA has been executed, then the borrower must submit an Alternative RASS to the servicer.
· After receiving the Alternative RASS, the servicer must determine the basic eligibility of the borrower. If eligible, the servicer must notify the borrower verbally or in writing of the availability of a HAMP modification.
· The borrower then has 14 calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration for a HAMP modification.
· The servicer must communicate approval or disapproval of the sale or provide a counter offer on the Alternative RASS within 30 calendar days from the date of receipt from the borrower of an executed sales contract, Alternative RASS, and a signed Hardship Affidavit or RMA.
Within 10 business days after the servicer receives the RASS and all required attachments, the servicer must approve or deny the request and inform the buyer. In the case of disapproval, a statement of reasoning must be given.
After approval of the RASS, the servicer may require that the closing take place within a reasonable period, but not sooner than 45 calendar days from the date of the sales contract unless the borrower agrees.
Release of First Mortgage Lien
After receipt of the sale proceeds from a short sale or delivery of the deed and property in a DIL transaction, the servicer should comply with local or state laws or regulations set in place which should define the time limit allowed for the release of the first mortgage lien. If there are no laws or regulations set in place, the servicer must release the first mortgage lien within 30 business days from the date the servicer receives payment and satisfies the mortgage. In addition, the investor must waive their right to pursue a deficiency judgment and may not require a promissory note for the deficiency to be signed by the borrower.
Real Estate Commission
Keep in mind, the property MUST be listed with a licensed real estate professional.
The real estate commission should not exceed 6% of the contract sales price.
When the servicer has retained a contractor to assist the listing broker in the transaction, a statement must be included by the servicer in the Alternative RASS stating that the borrower will not be charged any associated vendor fees, nor will they be deducted from the real estate commission. The payment amount should be included if it is to be deducted from the sale proceeds.
The servicer may NOT require that the real estate commission should be reduced as a condition of the sale. However, in disputes between 1st and 2nd position lien holders, an agent contribution may still be required.
Alternative HAFA Deed-in-Lieu Program
· Deed-for-lease gives the borrower an option for the borrower to continue to occupy the property on a rental basis.
· Borrowers could be given the opportunity to repurchase the property at some future time.
· The borrower’s relocation incentive is paid upon successful closing of the DIL or at a future time when the borrower vacates or repurchases the property.
If these programs are offered, descriptions and conditions should be included in the HAFA Policy.
Other HAFA Facts
The transaction must be considered "arms length," meaning that the borrower may not sell the property to a relative or anyone else they may have a close relationship with.
Borrowers will not be taxed on the forgiven debt if the amount is less than what was used for acquisition, construction, or rehabilitation of their home.
If the amount forgiven does exceed this, it could be considered income for tax purposes, subject to the Mortgage Forgiveness Debt Relief Act.
The buyer may not resell the property for at least 90 days.
Reasons for Cancellation
Improvement in borrower’s financial situation.
Borrower or listing broker does not act in good faith in the listing, marketing, or closing aspect of the sale.
Any fraud or misrepresentation in the sale.
Substantial change in property’s condition or value.
Bankruptcy is filed by borrower.
Any litigation that happens (or is in danger of happening) that would affect the title, such as divorce or probate.
~ Contact a local HAFA specialist for no cost assistance ~
HAFA Short Sale Program Forms:
Are you looking for a Distressed Property Expert Certified HAFA short sale specialist to offer free Short Sale Real Estate services? Our Short Sale Realtor Specialists are extremely familiar with all requirements and Our Certified Distressed Property Expert real estate agents are here to help, and are Certified or trained in the HAFA Government short sale program, also known as Home Affordable Foreclosure Alternatives.