Short sales are confusing enough, but let's throw a new program into the mix. It's called HAFA. Now to not confuse you even further, I'm going to talk about the good old regular HAFA program and not the Freddie Mac/Fannie Mae HAFA short sale program.
Homeowners need to be aware of the pros and cons of the HAFA program. I received two calls this week from agents who were furious when their short sales were approved the lenders "kept the right to pursue the deficiency" and gave no relocation assistance.
Here's why:
SECOND lenders do not have to participate in the HAFA program so even though it's Chase or Wells or whoever the second lender is and they independently participate in the HAFA program as a second lender on the property they do not have to comply with the HAFA program. The agent's going into these short sales didn't realize that. Not only were the agent's furious about what happened to the homeowners, the lenders in both cases CUT the commission to get an approval. Imagine that? A short sale lender cutting an agent's commission? Well THERE'S something you don't see every day right? WRONG!!
So let's go over the basics for the HAFA program.
The PROS:
If you only have ONE mortgage and that mortgage company is a participant and approves your short sale there are some PROS:
1) You will be released of the deficiency (the difference in the accepted offer to what you owe- for example you owe $225,000 and someone offers $175,000 you will be released of that $50,000 deficient amount. The lender will not go after you)-This doesn't mean you won't have tax liabilities.
2) You can get up to $3000 in moving expenses.
3) The lender will need to respond in 10 days to the buyer's offer-THIS DOES NOT MEAN you will GET AN APPROVAL in 10 days. They just need to respond and a response is, "Hey we've received it and we're looking at it"
Those are VERY strong reasons to attempt a HAFA short sale if you QUALIFY! So let's see if you actually qualify....
These are some of the qualifiers for HAFA:
- Property must be the homeowner's primary residence.- No investment or second homes will be considered. "The property is the borrower's principal residence, except that the property can be vacant up to 90 days prior to the date of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (Alternative (RASS) or DIL Agreement if the borrower provides documentation that the borrower was required to relocate at least 100 miles from the property to accept new employment or was transferred by the current employer and there is no evidence indicating that the borrower has purchased a one- to four-unit property 90 days prior to the date of the SSA, Alternative RASS or DIL Agreement." [From the Supplemental Directive]
- The first mortgage must have originated before 2009.
- Mortgage payments must be delinquent OR default is reasonably foreseeable.
- Unpaid balance is not more than $729,750.
- If a homeowner hasn't applied to HAMP the servicer will require a completed Request for Modification and Affidavit along with verifiable financial hardship evidence that the homeowner's financial situation meets the 31% income eligibility requirement.
- Homeowner's TOTAL monthly payment PITI-(principle, interest, taxes, insurance and HOA dues) MUST EXCEED 31% of their GROSS MONTHLY INCOME.
Ok. Great. You qualify and you've applied to HAFA and are enrolled in the program:
Here are the CONS:
1) Mandatory deed in lieu - The homeowner is required to sign a deed in lieu requiring them to hand back their house to the bank if the home doesn't sell. This is the number one reason I would never have a homeowner sign up for HAFA - a Deed in Lieu is a "friendly foreclosure" and reports on your credit report very similar to a foreclosure
2) 120 days. You have 120 days to sell your home through HAFA from when they MAIL you the SSA (Short Sale Application) - If you don't sell your home in that time, refer to #1. You agreed to a friendly foreclosure - deed in lieu. You MAY be given additional time to market your home, but don't bet on it.
3) Your lender will set the price for the property. A BPO is done PRIOR to listing the property. The BPO agent is hired by YOUR LENDER and if that BPO agent is not experienced with the home market in your area you could be in trouble. They are not responsible for the accuracy of the list price and have no responsibility to you in the event the property is not sold.
***Side note: Last week I got a call from a homeowner who had Bank of America as a lender and had NO idea she had enrolled in the HAFA program. Her agent had not fully explained what was going on and she didn't know what she agreed to. She asked me to buy her home. Now we buy short sales. We love short sales, and that's what we focus on for investing but we cannot buy every short sale and we have to qualify them. I immediately called her agent and spoke to him. He informed me the lender set a price of $177,000 for the property. They got one offer in for $120,000 in which I'm sure you can guess the outcome. They (BOA) denied the offer. The home needed a tremendous amount of work. It's value really was closer to $100,000 with all the repairs it needed and the location didn't help it's value. I explained to her we could not buy it because we would be no where near an acceptable offer for BOA. It was heart breaking to explain to her that if she didn't get an offer, she would likely be looking at the deed in lieu****
4) HAFA is a set of guidelines. It's not law, so if the lender doesn't follow protocol, there really isn't a legal action that can be taken.
5) Each participating lender develops their own written policy, consistent with investor guidelines, that describes the basis on which the lender will offer the HAFA program to borrowers. You do not get to see the guidelines. However, the guidelines are submitted to the government. So how are you to seriously know if the guidelines have been broken? Makes a LOT of sense huh?
6) Servicers may amend the terms of the SSA in accordance with investor requirements - Basically this means lenders can do whatever the heck they want and well, then why would anyone consider HAFA? Lenders do whatever they want with a good old traditional short sale and you don't have all the other negatives.
7) Homeowners must make partial mortgage payments through the process. These payment amounts are determined by your lender.
8) COMMISSION ISN'T PROTECTED - This one is really for the agents out there. I think that's why the agents we work with really like us. THEIR COMMISSION is PAID IN FULL. Here's the thing. If a second lender wants commissions slashed to approve the short sale within HAFA your commission is not protected at 6% and then it truly isn't a HAFA short sale as the agents we spoke with this week found out.
The reason I wrote this is because of the two agents who worked very hard on what they believed was a HAFA short sale releasing the homeowner of any deficiency and allowing a $3000 moving credit. Their frustration with the 5-6 months they wasted only to have the end result be similar to a traditional short sale was evident. PLEASE keep in mind second lien holders DO NOT necessarily participate in the HAFA process EVEN if they area HAFA approved lender.
We purchase MULTIPLE short sales and don't put offers on any HAFA short sale property because we don't believe in having a homeowner sign a deed in lieu to be part of the program. I am not saying the program doesn't have it's benefits, but homeowners, agents, and everyone else involved need to know ALL the pros and cons before making a decision on how to short sale their home, whether through HAFA or a traditional short sale.
Maryann Little works with homeowners in preforeclosure. Her company Rapid Property Relief, LLC focuses on preforeclosure acquisition and negotiation in New Hampshire and Massachusetts. For more information go to http://rapidpropertyrelief.com.
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