Add another acronym to the alphabet soup of programs for homeowners facing foreclosure. The Treasury Department rolled out its new HAFA program (Home Affordable Foreclosure Alternatives) on November 30th. This program is a last resort for borrowers unable to make payments, sell their property or refinance their loan. The HAFA program seeks to address many of the complaints surrounding short sales and deed in lieu of foreclosure transations.
Any agent that has worked a short sale, can attest to the difficulty and senseless time wasting involved in a short sale. The first problem is there is no accepted process to obtain a bank’s consent to a short sale prior to listing the home for sale. So homeowners and agents are forced to list the property without knowing whether or not the bank will approve the sale at the listed price. Many banks will only begin to speak with a borrower about a short sale when a written offer for the house is received.
The best way to generate an offer quickly is to list the price for an absurdly low price. The listing broker and seller use the first offer to find out what the bank would actually accept short of the loan payoff. Unfortunately, the prospective buyer and buyer’s agent unknowingly provide a valuable service for the seller but waste their own time and energy in the process since the list price on the house was never in the acceptable range for the lender.
Once the lender gives some guidance as to the price they would accept, the homeowner adjusts the list price to a more realistic number. The next offer has a much better chance, but not before the bank attempts to squeeze the real estate agents out of the deal by making him accept a lower than market commission rate as a condition of approval of the short sale agreement.
The Making Home Affordable initiative sent out an email today describing the HAFA program and the ways in which it would address the current concerns with short sales:
The HAFA program simplifies and encourages short sale and DIL (deed in lieu) options by:
- Offering eligible borrowers viable alternatives to avoid foreclosure;
- Providing a standardized process and time frames for handling viable alternatives;
- Allowing pre-approved short sale terms before a property is listed;
- Preventing servicers from attempting to reduce real estate commissions established in the listing agreement as a condition for short sale approval;
- Releasing borrowers from future liability for the debt; and
- Providing financial incentives to borrowers, servicers and investors.
Borrowers should be (or request to be) considered for a Home Affordable Modification Program (HAMP) modification and other retention programs before being considered for HAFA.
There are sample documents on the program website including a sample short sale agreement, request for approval of short sale, alternative request for approval of short sale, and deed-in-lieu of foreclosure agreement.