Short sales will be streamlined under the federal government's Home Affordable Foreclosure Alternatives, or HAFA, program, which kicks off today.

These transactions - with a lender allowing a sale for less than the amount owed  on the mortgage- can take several months to close and sometimes fail, with the eventual outcome a foreclosure.

HAFA provides incentives to borrowers and lenders alike to work together and speed up short sales as an alternative to repossessing the home.

To be eligible for HAFA, homeowners must first apply for a loan modification through the Home Affordable Modification Program. Those who do not qualify for a loan mod or miss payments during the trial period qualify for HAFA.

Under HAFA, borrowers get preapproved short sale terms from the lender before putting their homes on the market. Sellers are supposed to get at least 120 days to market the home, or even up to a year, and can't be foreclosed on during that time.

When a buyer makes an offer, borrowers must submit the sales contract to the lender within 3 days, along with the buyers' mortgage preapproval and the status of negotiations with other lien holders on the seller's property. Lenders must approve or deny the contract within 10 days.

HAFA requirements:

• Property is the principal residence.
• Mortgage originated before Jan. 1, 2009.
• Loan is owned or guaranteed by Fannie Mae or Freddie Mac.
• Borrower is delinquent or default is likely.
• Homeowner shows financial hardship.
• Borrower's total monthly housing payment exceeds 31% of gross income.
• Unpaid principal is not more than $729,750.

HAFA financial incentives include $1,000 to mortgage servicers, up to $1,000 for mortgage holders who share short sale proceeds with second lien holders and a payment of up to $3,000 for second mortgage holders.

Homeowners also can get $1,500 for relocation, to encourage them to stay in the home until the short sale closes, because an owner-occupied home is usually in better shape  than a vacant one.

Source: OC Register today