With all of the changes on Fannie short sales, I want to be sure I have this straight.
My client has been offered a Fannie short sale and an appraisal has been done. (It's waaay too high, but that's a separate issue I'll deal with.) Anyway, from the beginning, we'd planned to pursue a HAFA sale. After discussions with the servicer, they have agreed that a HAFA sale is acceptable for the client, but continue to state that they will pursue a promissory note workout with the borrower after the sale closes.
I thought that a HAFA sale would release the borrower from future liability? Especially in Washington State where we're working.
Can someone clarify this for me? I did look on the Fannie site and in their FAQ doc dated 4/30/13 it sure does look like they're reserving that right .......
Does anyone have any suggestions for us? I'd sure appreciate it. Thank you!!
**********************************
like buttons
Replies
Fred, you said Washington is NOT a non-deficiency state. I assume you mean by this that Washington is NOT a non-recourse state. So, why do you say a lender can't pursue a deficiency after a foreclosure, since there is recourse?
Gabrielle, the reason to pursue the short sale is, one of two outcomes:
1) The deficiency is waived, no promissory note, everbody is happy
2) The Majority of the deficiency is waived, and the seller signs a promissory for say 10-30% of the deficiency.
Wayne, if we can get the deficiency completely waived without a promissory note, then a short sale is a better option. If there IS a promissory note involved, then a foreclosure may make more sense.
FNMA, as a matter of course, always asks for a contribution no matter how insane it would be. I have not had an FNMA in a while, but by simply pointing out the finances, I usually got it totally dropped. In other cases, reduced - like in asking for $10K and getting $1K cash.
If you go through closing, you get a "settled not in full" on your credit report vs. foreclosure. I believe there is a big diff in what that does to your credit. If you SS, say the bank writes off $100K loss, they cannot go after you for that $100K. If they foreclose, they can. If you SS and end up with a $10K note they can't go after you for the $90K diff, but can for the $10K unsecured. So, is it really better for the bank to go after you for $100K (plus interest and penalties) than $10K (at 0% interest)?
Credit stuff is purposely a mystery, so it is possible that something like a "new" note being ignored for $10K weighs heavily instead of an old note for $100K+, but I doubt it. To me, nothing is worse to your credit than a foreclosure. And if the diff is sold to some collection agency, wouldn't you rather finally pay them off at 10% of $10K than 10% of $100K+?
does the borrower has a 2nd lien? HAFA program waives any deficiency judgment, lender can't ask for promissory note and can't go to the borrower after short sale is approved and close. but, if the property has a 2nd lien mortgage, may be the 2nd lender dones't approve for HAFA, may be ask for promissory note, and can pursue the borrower after closing, this information I got for several web sites, and for experience.. This is the HAFA program, and I dont know if has changed, but I don't think so.
http://www.makinghomeaffordable.gov/programs/exit-gracefully/Pages/...
This is directly web site. and it is very clear..
"
But Aida -- a Fannie HAFA II short sale is not a traditional HAFA sale. This is where I got confused. Everything you say about HAFA is what I was looking for in a HAFA II Fannie short sale. The two are not the same.
Be careful in assuming that your sellers will have the deficiency waived with any short sale in Washington state. It is not a non-deficiency state. The lien holder must state in their first communication regarding the short sale whether or not they will waive the right to pursue the deficiency, but that is all.
I think the confusion lies in the fact that after a foreclosure the first lien holder cannot pursue a deficiency.
Yes, that is correct. However, My confusion was that, with HAFA, the deficiency is waived, and I was counseled by other short sale agents that the same was true with HAFA II.
The ultimate issue then becomes "why" pursue a short sale at all. If Fannie won't waive the deficiency, it's a small small credit report benefit between a short sale and a foreclosure. The client "may" be able to purchase again slightly sooner with a short sale and the stigma of a foreclosure stays with the credit agencies longer. However, with the requirement that an owner with a true medical hardship commit to a promissory note, walking away may be easier and better for them in the long run.
In this instance, the owner's medical hardship is ongoing and paying the medical bills comes before paying the mortgage. Debt:Income ratios may still require a promissory note for now, but what happens next year when the medical bills are higher?
As a short sale agent who truly wants the best for her clients, I may be hard pressed to take a Fannie short sale where there is income, but a hardship that forced an owner to fall significantly behind in mortgage payments -- especially on a house that's far upside down in value and the proffered loan mod benefit was negligible.