As you may have heard on the news, the U.S. Treasury is trying to make short sales, well, shorter! Many homeowners and buyers have been plagued for waiting months for short sale approvals. Realtors are at their wits end. Lenders are overloaded with requests. Waiting five months for a short sale approval is becoming the norm. The new program that is supposed to help is called “Home Affordable Foreclosure Alternatives Program” or “HAFA”.
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 proposed short sale changes, 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) The home is your primary residence
3) You got your primary mortgage before Jan. 1, 2009 and your balance is less than $729,750
4) Your monthly mortgage payment is greater than 31% of your gross income
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”. So this does not look like a slam dunk, guys!
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”…
POSITIVE: 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: The program says you do not have to resubmit your financial paperwork for the short sale (a big pain for many short sale sellers) after you have already provided it for HAMP.
POSITIVE: Your lender will 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.
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 $1500 relocation incentive upon closing your short sale.
*** 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 $3000 (or 3% of the junior balance) 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 your Realtor’s 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, especially from a second mortgage not related to your home purchase.
There is a lot to this new HAFA program, which officially starts on April 5, 2010 (although your lender may participate sooner). How many people it will actually help is questionable. If it does work, it will speed up your short sale. If it does not, there are still many options available to you.
It's Wendy!
Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.
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