Fannie, Hafa, & Promissory Notes?

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!!

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Permalink Reply by Gabrielle Nemes on June 4, 2013 at 6:46am

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.

Permalink Reply by Wayne Brooks on June 4, 2013 at 6:30am

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.

Permalink Reply by Gabrielle Nemes on June 4, 2013 at 6:47am

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.

 

Permalink Reply by joe beauchamp on June 4, 2013 at 7:15am

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+?

Permalink Reply by Wayne Brooks on June 4, 2013 at 6:35am

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? 

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