Nancy & Ann in Colorado Springs do an excellent job of explaining the differences between a HAFA short sale and a traditional short sale. For buyers looking at making an offer on a short sale, inquiring as to whether the property / lender is operating under HAFA guidelines is obviously very important. As a buyer, making an offer on a non-HAFA short sale is at best going to be a frustrating experience and in many cases a time waster.
What are the differences between a HAFA short sale and a traditional short sale?
The biggest difference is the approval process and time lines. For the HAFA program, the participating lenders have agreed to follow the government mandated times to include pre-approving the seller BEFORE the property is listed with an agent. The lender plays an active roll in evaluating the status of the marketing and pricing of the home during the marketing period, and once an offer is received, the lender must respond within 10 days. If the offer is reasonable, the transaction proceeds to closing. A specified time to close is not required by HAFA, but the lenders want to close quickly and since they have pre-approval for the short sale with the mortgage investors, the closing can happen in short order, 30-45 days.
With traditional short sales, the lender often will not want to work with the homeowner or the listing agent until after the first offer is submitted. The lender then begins the process of obtaining approval from the mortgage investors. This alone can take months and is the reason why short sales have a bad reputation with buyers and buyers' agents.
With the HAFA, the foreclosure is postponed during the 120 day marketing period. Additionally, the seller must agree in advance that if the property does not sell within the 120 days, they will turn the property over to the lender in deed-in-lieu of foreclosure. As long as the homeowner cooperates, they will receive $3000 for relocation costs whether the property sells or not. The lender also agrees that they will not file a deficiency against the homeowner.
For the traditional short sale, there are no promises made by the lender. If an offer is not received before the foreclosure date, the property will go to foreclosure. Additionally, the homeowner receives nothing and could receive a deficiency if it is not negotiated with the lender at the time the short sale is approved.
As more and more lenders participate in the HAFA program, we will see "short sale" mean what it implies - a quick sale, and short sales become a positive experience for sellers, buyers, and real estate agents. We will also see the prices of short sales sell closer to market value. Gone are the days of pennies on the dollar deals for short sales. This will help to stabilize the Colorado Springs housing market because more homes will sell as a short sale closer to market value and fewer foreclosures and bank owned properties hitting the market. It may take a year or two, but we are already seeing banks hold on their list price for bank owned properties, this will be true for short sale properties as well.
Murray Knoll Partners
With Keller Williams Clients'Choice
Colorado Springs, CO