HAFA - the Home Affordable Foreclosure Alternatives Act may change the outlook for short sales. *Colorado homeowners should learn all their options before deciding on a short sale, but if short sale is the best choice for them, HAFA may make it happen more quickly and smoothly. (HAFA offers a short sale or deed-in-lieu alternative to foreclosure. This post will focus on the short sale path.)
If you make it through this post, read my next post with more details about HAFA short sales.
HAFA is set up to solve the burdensome problems that have plagued short sales and contributed to the lingering sickness of the real estate market.
FORMERLY: Homeowners didn't have much motivation to pursue a short sale as opposed to a foreclosure. It was thought that their credit wouldn't be damaged as badly, and they could probably buy another home sooner, but even that wasn't guaranteed.
PROBLEM: Due to the stress and feelings of loss associated with the process, homeowners attempting a short sale often allowed the home to fall into disrepair and didn't make much effort to make the home show well.
HAFA: At the closing of a successful short sale, homeowners receive $3,000 for relocation expenses. No one would consider that 'a windfall', but it is enough to give homeowners a little more motivation to do their part to help the home sell.
FORMERLY: Servicers (the lender, lien holder) would not state the amount they would accept in a short sale up front. They wanted an offer first.
PROBLEM: Buyers and their agents stayed away from short sales, because they had no idea whether the advertised sales price was even close to realistic. The servicer had not agreed to it, and could deny a full-priced offer, or counter MUCH higher.
HAFA: Participating servicers determine the current value of the property and their minimum acceptable net proceeds up front. Agents can then list the property accordingly. (Caveat: if servicer's determination is unreasonable, it will be up to the agent to help them 'see the light'!) If the value is determined correctly, buyers can make offers without the worries they would have had in the past.
FORMERLY: Once an offer was received and delivered to the servicer with all the documents they required, there was a waiting period usually varying between 3 months to a year for the servicer to accept/reject/counter the offer.
PROBLEM: Buyers and their agents stayed away from short sales, because buyers needed a home, and even those could wait, got tired of the game and walked away before a response was received. This forced the listing agent to find another buyer asap, and hope the process wouldn't be interrupted. Often, this was to no avail and the process went back to step 1.
HAFA: Servicer must respond to an offer received with all required documentation within 10 days. Yes, you read that right - t-e-n days!
FORMERLY: When servicers did finally get around to responding, they were often unreasonable in their acceptable terms.
PROBLEM: Weeks or months have been wasted. Meanwhile, foreclosure proceedings continue.
HAFA: If the offer meets the pre-stated minimum acceptable terms, servicer must accept the offer. Even if their acceptable terms were unreasonable in the first place, at least all the time wasn't wasted.
FORMERLY: Servicer may respond with a requirement for borrower to pay some money towards the deal.
PROBLEM: People going through the slow and painful process of losing their house often have complicated and heavy financial problems. They don't usually have sums of cash laying around.
HAFA: To participate in this program, the lender must waive any right to collect additional sums (cash contribution or a promissory note) from borrower, and
The lender is not allowed to charge borrower any in connection with HAFA.
FORMERLY: If an offer makes it all the way through this process, servicers would often come back with a requirement for an unreasonable length of time until closing. (I've even heard of required closing dates that had already passed before the response was received!)
PROBLEM: The buyer has not done their inspections, being unwilling to spend hundreds of dollars on a home they don't know if they can buy. So closing can't happen in the required time frame and negotiations are on again.
HAFA: Servicer can specify a reasonable amount of time to close, but not less than 45 days.
FORMERLY: While waiting for this lengthy process to unfold, servicers could go ahead and foreclose on the property.
PROBLEM: Just one more potential nail in the coffin of the entire deal. Buyers, seller, agents, all holding their breath as the foreclosure date approaches, hoping it could get postponed. Often the banks would only postpone a week at a time, some times a month at a time.
HAFA: Servicer may initiate or continue foreclosure process during HAFA, but may not complete a foreclosure sale while determining borrower's HAFA eligibility and qualification, while awaiting timely return of a fully executed SSA, during the term of a fully executed SSA, pending transfer of property ownership based on an approved sales contract per the RASS or Alternative RASS. (You'll have to read my next post to find out what SSA & RASS are.)
FORMERLY: Homeowners were vulnerable to unscrupulous investors and their agents who weren't looking out for the homeowners' best interest, even though the homeowners thought they were. Often, homeowners were convinced to sign over title to their property and to move out so investors could make a quick profit to the tune of several thousand dollars. Investors justified this by saying they could get the short sale approved more reliably than real estate agents could.
PROBLEM: These investors added another layer to the process that was unnecessary to getting the homeowner what they needed - a short sale. The investors would be negotiating with the servicer for a low settlement, while seeking a much higher offer. An offer may be received that would be completely acceptable to the servicer but the servicer would never see it, or even know it existed. The buyer would lose the home because the investor couldn't make their profit. All along, the homeowner that could have had a short sale ends up with a foreclosure instead.
PROBLEM: All through this process, the homeowner is not being represented by anyone looking out for their best interests, because they signed over their title and the listing agent is working for the investor.
HAFA: These schemes will not work if a borrower wants the benefits that come with HAFA, as the borrower must be able to provide marketable title. If you sign your title over to someone, you cannot participate in HAFA.
Also, the home must be your principle residence. If you abandon the home for any reason besides a qualified job transfer you cannot participate in the HAFA program.
FORMERLY: If a homeowner claimed bankruptcy a short sale could not be completed.
PROBLEM: Bankruptcy added weeks to an already too-long process
HAFA: If borrower is in bankruptcy they must be considered for HAFA if the borrower, borrower's attorney or bankruptcy trustee submits a request to the servicer.
This post is already quite long, so I'm going to save the rest for another post. If you're interested in learning more about HAFA, please visit tomorrow's post.
HAFA is effective through December 31, 2012.
*This is a Federal program so doesn't just apply to Colorado, but I live and work in Colorado so those are the folks I'm speaking to most directly.
** There is no requirement for a servicer to participate in HAMP/HAFA.
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I write posts on real estate issues and local events in the Denver metro area, especially those *communities between Denver and Boulder, as a public service. My hope is to give people an idea of the 'flavor' of our community, in case they're new or moving to the Denver area.
I am a residential real estate agent, happily helping folks buy a house or sell a house in the beautiful and friendly *suburbs northwest of Denver.
*Arvada, Broomfield, Lafayette, Louisville, Superior, Westminster; also Thornton, Golden, Wheat Ridge, Northglen, Lakewood
Read more about Arvada Colorado, a historic small town between Denver and Boulder.
Find Homes for Sale, no Matter Who Listed Them, at Dream House Hunting.
Copyright © 2011 Joetta Fort
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