Cash Reserves
Help, we were just declined by BofA for the HAFA Short Sale program. We had cash reserves in excess of $5000 but provided a detailed letter as to where the money came from and our monthly expenses. Our realtor acts as if this is all new to him, but if we can find the June 1, 2010 document by Fanniemae, so can he. Are there any resources available to challenge this decision. Thank you
Replies to This Discussion
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Permalink Reply by Steve Early on
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Hi David:
HAFA is a government program with guidelines. Guidelines which, unfortunately, can sometimes seem like they are being followed, and other times ... not so much.
According to the "guidelines":
If you have cash reserves of $5,000, then that means your monthly mortgage payment needed to be less than $1,666.67/month for you to be denied because: According to HAFA guidelines you can't have cash reserves of $5,000 OR 3x your monthly mortgage payment, whichever is GREATER. So if your mortgage payment is OVER that amount, then that trumps the $5,000 maximum reserves.
If this is not the case (your payment is less than $1,666.67/month) then I would think that explaining why you have the $5,000 should be acceptable especially if it is a one-time event. We recently had a client who suddenly showed a $20,000 deposit in his account (not a HAFA short sale, but it represented a potential problem on a conventional short sale). He explained that he pulled $20,000 out of what was left in his IRA to live on until the short sale was resolved. The "problem" went away.
Regardless of all this, the operative words here are that HAFA is a PROGRAM. Lenders participate voluntarily -- it is not mandatory. It is not the law, there are no investigators policing all HAFA transactions, and I have no clue what the penalties are if a lender violates the program guidelines. Lenders seem to implement it very inconsistently.
Part of your problem could be a significant educational failure. The deadline for lenders (who volunteered to implement HAFA) was April, yet we talk to negotiators at major lenders (like BofA) all the time who still have very little knowledge of HAFA. Even if they do, there is a lot of finger-pointing that goes on - "We would do it it but Fannie Mae won't let us". It's ridiculous. So I wouldn't make a voodoo doll of your Realtor and start sticking it with needles just yet.
Our company has negotiated hundreds of short sales over the years and what we have learned about HAFA leads me to conclude that it is basically a disaster. If one reads all the guidelines and the benefits of doing a HAFA short sale, it makes it look like it is a pretty good deal. But in actual implementation we have seen sellers not get the things they were supposed to get out of HAFA such as; full debt forgiveness on their loan, $3,000 in moving expenses, full commissions for the Realtor (up to 6%), a price up front that the lender would accept for the property, 10 days to make a decision if an offer is presented ...
I may be letting my "right of center" politics shine through here, but I maintain the government can't run a damn thing, and HAFA, HARP, HAMP and their umbrella program "Making Home Affordable" are just further evidence of all this.
My advice to you is: If you really need to do a short sale, tell your lender that you really don't want to do the HAFA program at all unless they can guarantee in writing that A) you qualify and B) you will get ALL the benefits as described by the "official" program guidelines. Without that - stop wasting your time with HAFA and do a conventional short sale.
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Permalink Reply by Dominique Van Ryckeghem on
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I second what Steve said: move on to a conventional short sale and use the money you have as a trump card to get any deficiency language removed from a short sale approval letter if need be.
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Permalink Reply by David McCallister on
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Hi Steve, thank you for responding so quickly. Is the benefit of the HAFA Program for the borrower, to be released from the 1st and 2nd lien, and relocation expenses?
Without using the HAFA program, is it possible to request that the 1st and 2nd lien release us?w
Steve Early said:Hi David:
HAFA is a government program with guidelines. Guidelines which, unfortunately, can sometimes seem like they are being followed, and other times ... not so much.
According to the "guidelines":
If you have cash reserves of $5,000, then that means your monthly mortgage payment needed to be less than $1,666.67/month for you to be denied because: According to HAFA guidelines you can't have cash reserves of $5,000 OR 3x your monthly mortgage payment, whichever is GREATER. So if your mortgage payment is OVER that amount, then that trumps the $5,000 maximum reserves.
If this is not the case (your payment is less than $1,666.67/month) then I would think that explaining why you have the $5,000 should be acceptable especially if it is a one-time event. We recently had a client who suddenly showed a $20,000 deposit in his account (not a HAFA short sale, but it represented a potential problem on a conventional short sale). He explained that he pulled $20,000 out of what was left in his IRA to live on until the short sale was resolved. The "problem" went away.
Regardless of all this, the operative words here are that HAFA is a PROGRAM. Lenders participate voluntarily -- it is not mandatory. It is not the law, there are no investigators policing all HAFA transactions, and I have no clue what the penalties are if a lender violates the program guidelines. Lenders seem to implement it very inconsistently.
Part of your problem could be a significant educational failure. The deadline for lenders (who volunteered to implement HAFA) was April, yet we talk to negotiators at major lenders (like BofA) all the time who still have very little knowledge of HAFA. Even if they do, there is a lot of finger-pointing that goes on - "We would do it it but Fannie Mae won't let us". It's ridiculous. So I wouldn't make a voodoo doll of your Realtor and start sticking it with needles just yet.
Our company has negotiated hundreds of short sales over the years and what we have learned about HAFA leads me to conclude that it is basically a disaster. If one reads all the guidelines and the benefits of doing a HAFA short sale, it makes it look like it is a pretty good deal. But in actual implementation we have seen sellers not get the things they were supposed to get out of HAFA such as; full debt forgiveness on their loan, $3,000 in moving expenses, full commissions for the Realtor (up to 6%), a price up front that the lender would accept for the property, 10 days to make a decision if an offer is presented ...
I may be letting my "right of center" politics shine through here, but I maintain the government can't run a damn thing, and HAFA, HARP, HAMP and their umbrella program "Making Home Affordable" are just further evidence of all this.
My advice to you is: If you really need to do a short sale, tell your lender that you really don't want to do the HAFA program at all unless they can guarantee in writing that A) you qualify and B) you will get ALL the benefits as described by the "official" program guidelines. Without that - stop wasting your time with HAFA and do a conventional short sale.
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Hi Dominick,
Can you explain what you mean by using the money as a trump card? Also, by deficiency language, do you mean getting released from the liens?
Dominique Van Ryckeghem said:I second what Steve said: move on to a conventional short sale and use the money you have as a trump card to get any deficiency language removed from a short sale approval letter if need be.
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David:
Being released from a first and second lien is not a feature specific to HAFA. When we work a conventional short sale for a client, we work both liens. The alleged benefits to the borrower under HAFA are:
- They are supposed to tell you up front what they will accept for the short sale
- If you get an offer, they are supposed to respond to it within 10 days
- The seller can get up to $3,000 in moving expenses
- You are guaranteed debt forgiveness on the lien
Note that in the beginning, it was my understanding that HAFA was aimed at resolving just the first lien shortfall, but I have seen announcements from some lenders that they were expanding it to both first and second liens. I would also encourage you to ask the lender these questions if you stay on the HAFA short sale path:
1) How long do I have to sell my house using the HAFA short sale program?
2) What happens if I don't sell my house in that time frame?
3) If I don't get any offers after 1-2 months, will you lower the price you will accept?
I think these could be important questions to ask because some lenders will only give you 120 days to wrap up a short sale. If you can't do it in that time frame some of them will force you to do a Deed in Lieu of Foreclosure.
As indicated in my original note however, none of the HAFA benefits are guaranteed in my view. If you want to read up on one agent's experience to see a real live situation; put "HAFA Violations" in the search field in the upper right hand corner of this page. When the results come up, look for a topic with that exact title, click on it and then go about half-way down the page until you find an entry by Wendy Smith made on September 30th at 11:35 AM. Read her horror story on a short sale that was done as a HAFA short sale and gave every indication of being a HAFA short sale all the way through.
I'm sure there are some people that have had a positive experience, were forgiven their deficiency and got the $3,000. There are also people who have hit the lottery. I just don't know any of them personally.
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Permalink Reply by Smitty on
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Steve Wrote "If you can't do it in that time frame some of them will force you to do a Deed in Lieu of Foreclosure."
They force you to to a deed in Lieu up front. You sign a form stating if you don't sell in the 120 days you agree to the deed in lieu at that time. When you put in your application, THAT'S when you're agreeing you'll do a deed in lieu if it doesn't sell. Now you can possibly have it extended, but I wouldn't chance it.
That's why I won't do HAFA short sales. Or at least one of the bazillion reasons I won't.
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Hi Smitty:
I knew there are some lenders that make you sign the DIL document up front but I wasn't sure that this applied universally by all lenders. You raise a good point though. If that is a condition of the HAFA short sale with the lender you're going through, you are locked in to having them be able to take the property at the end of 6 months. They could extend the time period for you to sell the property if they want to, but they're under no obligation to do so once you've signed that document.
Smitty said:Steve Wrote "If you can't do it in that time frame some of them will force you to do a Deed in Lieu of Foreclosure."
They force you to to a deed in Lieu up front. You sign a form stating if you don't sell in the 120 days you agree to the deed in lieu at that time. When you put in your application, THAT'S when you're agreeing you'll do a deed in lieu if it doesn't sell. Now you can possibly have it extended, but I wouldn't chance it.
That's why I won't do HAFA short sales. Or at least one of the bazillion reasons I won't.
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Dave:
When Dominique said: " ... use the money you have as a trump card to get any deficiency language removed from a short sale approval letter if need be."
He is referring to the fact that the lender could grant you permission to do the short sale and then reserve the right to pursue you for the balance. You may be able to offer them an additional payment in exchange for changing the language of their short sale approval letter so that it indicates they are giving you full debt forgiveness. Unfortunately, every Bank of America short sale approval letter I have ever seen says they "reserve the right to pursue you for any deficiency", but I have not ever had anyone offer them cash to change the language of their letter.
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Steve Early said:Dave:
When Dominique said: " ... use the money you have as a trump card to get any deficiency language removed from a short sale approval letter if need be."
He is referring to the fact that the lender could grant you permission to do the short sale and then reserve the right to pursue you for the balance. You may be able to offer them an additional payment in exchange for changing the language of their short sale approval letter so that it indicates they are giving you full debt forgiveness. Unfortunately, every Bank of America short sale approval letter I have ever seen says they "reserve the right to pursue you for any deficiency", but I have not ever had anyone offer them cash to change the language of their letter.
Rule of thumb for 2nds: approx. 10% of the note to release the lien, 20%-30% to release lien and liability.
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