Understanding The HAFA Effect On Short Sales
As a follow-up to last week's article about understanding the short sales process, I thought I would write about how the Obama Administration is trying to speed up the process with its Home Affordable Foreclosure Alternatives Program (HAFA). This program offers financial incentives to lenders, servicers, and even borrowers to utilize a short sale or deed-in-lieu of foreclosure to avoid a foreclosure sale.
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These HAFA alternatives are available for all HAMP-eligible borrowers who:
- do not qualify for a Trial Period Plan
- do not successfully complete a Trial Period Plan
- miss at least two consecutive payments during a HAMP modification, or
- request a short sale or deed-in-lieu
As is typical with government programs, this is all simply explained (note a trace of sarcasm) in an easy to read 43 page document that can be downloaded for your reading pleasure. For those of you (us) who prefer the shorter version, the summary is below.
HAFA Short Sale And Deed In Lieu Program
In a short sale, the loan 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 first mortgage.
Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a deed in lieu of foreclosure (DIL). With a DIL, the borrower voluntarily transfers ownership of the property to the servicer - provided title is free and clear of mortgages, liens and encumbrances (meaning this is not possible if there is a 2nd mortgage on the property).
With either the HAFA short sale or DIL, the loan 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.
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HAFA Guidelines
HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance time frames and standard documentation. The guidelines for HAFA are detailed further in the document(s) listed below.
- Home Affordable Foreclosure Alternatives Program Guidelines
- Short Sale Agreement (Exhibit A)
- Request for Approval of Short Sale (Exhibit A1)
- Alternative Request for Approval of Short Sale (Exhibit B)
- Deed-in-Lieu of Foreclosure Agreement (Exhibit C)
I know that REALTORS around the country are working diligently to enable faster moving short sales, and hopefully these government initiatives will help streamline the process of selling all the remaining glut of homes for sale.
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