There has been a great deal of variety and unknowns in the Short Sale process as each Servicer, Investor, Mortgage Insurance company, etc. involved in the process has a different way of processing, reviewing, and approving the transaction. The timeframes and results vary from one transaction to the next, many times even with the same lender or Servicing company.
On April 5, 2010 a new program takes effect under the Home Affordable Modification Program (HAMP), the Home Affordable Foreclosure Alternatives program (HAFA). The intent is to provide incentives to the parties involved in the process to more effectively and efficiently implement options to avoid Foreclosure, such as Short Sales. One of the intended effects is to bring uniformity to the process so there are less unknowns, hence a more attractive option to be considered by Homeowners in Distress, Buyers, and Realtors. If they meet their objectives, the process which has taken weeks or months in the past will be accomplished within 10 days.
So what are the rules? The rules are set by the new Home Affordable Foreclosure Alternatives (HAFA) Program, which seeks to find alternatives when a borrower cannot qualify for a modification under HAMP rules, because they don’t have enough income. Both short sales and deed-in-lieu of foreclosure will be options. In a deed-in-lieu of foreclosure the homeowner turns the keys over to the bank without the need for a foreclosure and the bank agrees to accept them without seeking any funds for a short fall when the home finally sells.
If a borrower is not eligible for a HAMP modification, then the bank will use the information gathered during the HAMP process so they don’t need to do additional eligibility analysis. The borrower will get a pre-approved set of terms for the short sale before the property is listed, which means the potential buyers won’t have to wait weeks or months for an answer from the bank. The bank is also required to fully release the borrower from any future liability for the debt.
For short sale offers where there isn’t a pre-approved set of terms, banks must respond to an offer in 10 days. However, I have not been able to find anyone who is sure when that 10-day count begins. Is it when the contract is offered or when all paperwork required by the bank has been submitted? We suspect banks will find ways to stall their answers. “It’s a cumbersome process. It will take a couple of months at least, to see what the lenders will actually do with this program.
To be eligible for help under HAFA rules:
- The property must be the borrower’s principal residence;
- The mortgage loan must be a first lien mortgage originated on or before January 1, 2009;
- The mortgage is delinquent or default is reasonably foreseeable;
- The current unpaid principal balance is equal to or less than $729,7501; and
- The borrower’s total monthly mortgage payment exceeds 31 percent of the borrower’s gross income.
The HAFA program simplifies and streamlines the use of
short sales and DIL options by incorporating the following unique features:
Complements HAMP by providing viable alternatives for borrowers who are HAMPeligible.
Utilizes borrower financial and hardship information collected in conjunction with
HAMP, eliminating the need for additional eligibility analysis.
Allows the borrower to receive pre-approved short sale terms prior to the property listing.
Prohibits the servicer from requiring, as a condition of approving the short sale, a
reduction in the real estate commission agreed upon in the listing agreement.
Requires that borrowers be fully released from future liability for the debt.
Uses standard processes, documents and timeframes.
Provides financial incentives to borrowers, servicers and investors.
If you are in the middle of the HAMP process or have been told you don’t qualify, be sure to ask about HAFA alternatives for help in getting out of your loan obligations.