Home Affordable Foreclosure Alternatives Short Sale Program

Home Affordable Foreclosure Alternatives ProgramWhat does a HAFA short sale do? The HAFA short sale program helps homeowners work with their mortgage servicer to successfully complete a short sale. Post short sale, the homeowner is released of all remaining debt and obligations and is eligible for up to $3000 for relocation assistance. Who is eligible/qualified for the HAFA program?

Homeowner must’ve exhausted all options for a loan modification(HAMP) and must request either a short sale or a DIL of foreclosure.

The property must be the homeowner’s primary residence or if rented out, it cannot be more than 12 months’ time. Exemptions: Job move >100 miles, not purchased another home within previous 90 days, vacant up to 90 days prior to SSA(Short sale agreement) or Alt RASS(Request Approval Short Sale)

The first lien mortgage must have originated on or before 01/01/09.

The mortgage payments must be at least 60 days delinquent or in default.

The UPB cannot be more than $729,750 for a 1 unit property. There are higher exemptions for 2-4 unit properties but no properties with more than 4 units are allowed.

The monthly mortgage payments must exceed 31% of the borrower’s gross monthly income (no verification required but need to show hardship).
HAFA Timeline

Bank has 30 days to approve or deny the HAMP loan modification; the borrower can reject the HAMP and proceed with a short sale.

Seller and broker respond to a short sale agreement within 14 days.

Seller submits short sale package to lender.

Bank orders appraisals and determines minimum short sale price.

Realtor markets the property and has 120 days to sell.

Realtor must submit short sale offer to bank in 3 days.

Lender response to RASS (request to approve a short sale) in 10 days (approved or not).

Short Sale buyer has a minimum of 45 days to close the short sale.
Let’s observe some of the points in the HAFA timeline abovePoint 2, we see the borrower has 14 days to accept a Short Sale Agreement (SSA). -A SSA is a contract between the homeowner and servicer -that will include:

A list price pre-approved by the servicer

The length of time the property will be marketed for sale

An agreement releasing the homeowner from all future liability after the property is sold

The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA

Information about the $3000 relocation assistance after closing

An agreement that so long the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure sale.
-For the homeowner to accept this offer, they must complete the following tasks:

Please sign and return this Agreement. All owners of the property must sign this Agreement.

Obtain your broker’s signature to acknowledge this Agreement, because your broker plays an important role on selling your property. The Short Sale Program sections (pages 2-4) contain important information that you and your broker will need to review and discuss.

Include a copy of your signed listing agreement.

Include information on other liens secured by your home (such as home equity loans, homeowner association liens, tax liens or judgments).

[Insert only if applicable:] Complete and sign the Hardship Affidavit form.
We must have these documents by [insert date 14 calendar days from this request]. Please send us these documents at the following address: [insert servicer address]. Point 4, Bank order’s an appraisal (BPO – Broker Price Opinion) -BPO must be:

Based on an interior and exterior inspection

Dated within 90 calendar days of the date the lender/servicer signed the initial SSA with the homeowner.

Performed by a vendor approved by the lender/servicer.
Point 6, (Within the 120 days) after the receipt of an executed sales offer, within 3 business days the borrower or the borrower’s listing agent must return a completed RASS or Alternative RASS with supporting documentation to the lender/servicer. -These Supporting documents include:

A copy of the executed sales contract and all addenda

A copy of the listing agreement, if any and if not previously provided

All information regarding the status of other liens

Buyer’s documentation of funds or buyer’s pre-approval or commitment letter with no contingencies other than a satisfactory appraisal and/or property inspection
Point 7, Important: The bank has 10 days to accept or reject the short sale submission (which is excellent!)In the case of an Approval 

There would be a full release of all liens: 1st – No prom notes and full release of deficiency verbiage. The subordinate liens may be compensated until the $6000 aggregate cap is reached. They must release the borrower from all claims in exchange of receiving the agreed upon amount. They MAY NOT require contributions from the agent or borrower.

Real estate Commissions are protected from the Home Affordable Servicing Manual: 6% of the sales price maximum.

Closing – Before the conveyance of the title, the servicer must confirm that the escrow closer has received evidence of all lien releases and agreements from both 1st and all subordinate lien holders.

Seller incentives – The seller is entitled a payment of up to $3000 for relocation expenses. This amount must show on the HUD-1 settlement statement. The lender/servicer cannot use the HAFA seller incentives to obtain the release of junior liens or non-real estate title liens
Can the servicer terminate the SSA before the expiration date? YESunder any of these circumstances: “The borrower…

Improves his/her financial situation

Qualifies for a modification

Brings the account current or pays the mortgage in full

Fails to make the monthly payment stipulated in the SSA (if applicable)

Files for bankruptcy and the bankruptcy court declines to approve the SSA

The borrower’slisting broker fails to act in good faith or abide by the terms of the SSA

A significant change occurs to the property condition and/or value

There is evidence of fraud or misrepresentation

Litigation is initiated or threatened.
*This is a condensed form and guide of the HAFA process What are the pros and cons of executing a HAFA short sale?Pros:

The homeowner would have full release of liability on the first mortgage and subordinate loans. No cash, no prom note, no deficiency judgment allowed, and ultimately, no liability after the short sale.

The lenders will provide a pre-approved price on the short sale prior to marketing. This eliminates the long wait of a typical short sale for an approval from the bank.

Homeowners will receive $3000 in relocation assistance upon closing.

Homeowners would have immunity from foreclosure as long as they are in accordance with the SSA terms.

Timeline – A HAFA short sale process has a shortened timeline after the receipt of a contract.

Required deed in lieu in the event that the home does not sell within the 120 day time period (some exceptions apply)

If the second lien holders do not comply with the short payoff, then the HAFA program will fall through.

Must have a clear title to the property.

May be asked to continue making mortgage payments, but not more than 31% of their gross income.

Must be an arm’s length transaction.

The seller may have to pay taxes on the debt forgiven and the relocation allowance.

Report to credit bureaus that the mortgage was settled for less than the full payment (typical of any short sale)

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