In the last few weeks the Home Affordable Foreclosure Alternatives (HAFA) Program has come into play. This program will allow homeowners to avoid some of the negative impacts of a foreclosure by (1) providing financial incentives for both the Homeowner and Lender to participate, and (2) by requiring that both the first mortgage holder and all subordinate lien holders must fully release their liens and waive all future claims against the homeowner for any amounts still owed after the completion of the short sale or a deed-in-lieu of foreclosure.
The financial incentives under HAFA are as follows:
- Homeowner Relocation Assistance. Following the successful closing of a short sale or DIL, the homeowner who is selling their property will receive $3,000 to assist with relocation expenses.
- Short sales – payment is received from the closing proceeds, and
- Deed-in-Lieu of Foreclosure (DIL)- payment is received at time of closing or a check must be mailed within five business days of the homeowner’s vacancy and delivery of keys to the Lender or its agent.
- Lender Incentive. The Lender will be paid $1,500 to cover administrative and processing costs.
- Reimbursement for Subordinate Lien Releases. A maximum of $2,000 will be paid for allowing a portion of the short-sale proceeds to be distributed to or paid to subordinate lien holders. (3 to 1 matching basis = $6,000.00 to be paid to subordinate lien holders = $2,000 reimbursement). The subordinate lien holders must agree to release their liens and waive all future claims against the borrower.
Key provisions of HAFA for real estate agents assisting in a short sale:
- Pre-Approval. Lenders are also require to pre-approve short sale terms, when requested, prior to the home being listed.
- The pre-approved terms are contained within a Short Sale Agreement (SSA) which are effective for 120 calendar days. Lenders may extend the effective date by up to 12 months.
- Fast Decisions. Once a Real Estate Agent submits a Request for Approval of Short Sale (RASS) the Lender must approval or deny it within 10 business days.
- Mandatory Approvals. Approval must be granted if the net sale proceeds to the Lender are equal or exceed the preapproved minimum amount (as contained in the short sale approval).
- No Commission Reductions. Lenders are prohibited from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.
- Up to 6% Commission Allowed. Real estate commission is not to exceed 6% of the contract sales price.
- Standardized Forms to Request a Short Sale. Special forms must be used for Homeowners that qualify under HAFA, however they are readily available for download here-> HAFA Homeowner Forms.
How do you know if a Homebuyer qualifies for HAFA?
- Principal Residence. The property is the homeowner’s principal residence. If you the homebuyer no longer lives in the residence there are a few exceptions where you may still qualify.
- Short Sale Loan Prior to 1/1/09.The mortgage loan is a first lien mortgage originated on or before January 1, 2009.
- Mortgage Delinquency or Default. The mortgage is delinquent or default is reasonably foreseeable.
- Loan Principal Balance Limit. The current unpaid principal balance is equal to or less than $729,750, higher amounts apply to multiple unit buildings.
- Income vs. Debt. The homeowner’s total monthly mortgage payment exceeds 31 percent of the homeowner’s gross income.
- Participating Lender. The program may not be required of every loan or by every lender so check with your lender to see if this program is available to you.
What is a Short Sale?
In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the mortgage. The short sale must be an arm’s length transaction with the net sale proceeds (after deductions for reasonable and customary selling costs) being applied to a discounted (“short”) mortgage payoff acceptable to the servicer. The servicer accepts the short payoff in full satisfaction of the total amount due on the first mortgage.
What is a Deed-in-Lieu of Foreclosure?
In a deed-in-lieu of foreclosure (DIL), the borrower voluntarily transfers ownership of the mortgaged property to the servicer in full satisfaction of the total amount due on the first mortgage. The servicer’s willingness to approve and accept a DIL is contingent upon the borrower’s ability to provide marketable title, free and clear of mortgages, liens and encumbrances. Generally, servicers require the borrower to make a good faith effort to sell the property through a short sale before agreeing to accept the DIL. However, under circumstances acceptable to the investor, the servicer may accept a DIL without the borrower first attempting to sell the property. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.
