I took a listing recently from a young couple who was clearly experiencing a financial hardship. They were both city workers whose salaries were cut and overtime eliminated. There were three loans recorded against their condo, all of them purchase-money, two of the three with CalHFA(California Housing Finance Agency). A month prior, this couple was denied a loan modification. I guess I should clarify: They were approved for a modification that lowered their monthly payments all of twenty-eight dollars, which did very little to offset their nine-hundred dollar monthly shortage.
I did the usual pre-listing qualifying work- checked the financials, confirmed the sellers were ready to sell and called CalHFA to find out anything new that could help us expedite a short sale. Everything looked good. I listed the house, found a buyer and opened escrow. Our complete short sale package was with CalHFA within a week.
Three weeks later, our short sale was declined. The counselor assigned to our file stated that the reason for the denial was a lack of financial hardship. This didn’t make sense since the financial statement and bank statements clearly documented that my clients’ income didn’t cover their living expenses.
The counselor and I went over the financial statement line by line. When we arrived at the section on childcare, she mentioned that the cost of caring for my clients’ two young children was not an allowable expense. Then she stated that the allowable amount for groceries was sixty percent of what was noted in the statement. The revised numbers showed my clients having an overage of one hundred and ten dollars, which from CalHFA’s perspective was enough to remove the financial hardship.
After hearing all that nonsense, the obvious question was “why?” of course. The counselor stated that my clients made just about the same amount of money at the time as they did when they purchased the home five years prior and, therefore, should be able to make their mortgage payments. I reminded her that this couple now had two children and that the recent decrease in income made it impossible for them to continue making their payments. Her response to my pleading was: “Ma’am, having children is a personal decision and not a hardship. The cost of raising them is not going to persuade us to approve the short sale.” And that was that. CalHFA cancelled the short sale. I resubmitted my package a few days later hoping the new person assigned to the file would see things our way. We had no luck. After weeks of bringing attention to this file in any way I could, the lender foreclosed and eventually sold the house for eight thousand dollars less than our offer price.
Here’s a list of what you should know about CalHFA short sales:
- CalHFA is a self-supporting state agency that provides funds for home loans through the sale of tax-exempt bonds. The bonds are repaid through the loan revenues. Due to the use of public funds, the bond investors have a fiduciary responsibility to recoup as much of the funds due CalHFA as possible. Don’t expect big(if any) discounts here and it’s probably best to keep investor-buyers away.
- CalHFA does not participate in HAFA due to $3000 seller relocation incentive incorporated into the program, which would mean less public funds returned.
- Short sales are approved only on owner-occupied property. This means the seller cannot move from the home until it is sold and the short sale is approved. CalHFA will decline the short sale if the homeowner vacates the property prior the agreed upon date.
- The property must be listed for at least 90 days prior to submitting an offer to allow for ample marketing time. However, CalHFA will review short sale packages prior to the 90-day period if foreclosure proceedings have been intiated
- The complete short sale package must be received by CalHFA no later than 19 days prior to a scheduled trustee sale. CalHFA will not postpone the sale if the package is received after that.
- Don’t be surprised if CalHFA’s FMV comes back significantly higher than that of comparable sales in the area. Bond investors work with a “window” of value, which oftentimes works against the deal.
- The sellers must be able to document the hardship in order for CalHFA to deem it “valid”.
- Hardships are documented via credit reports, pay stubs, unemployment documentation, etc. My clients would have had a better shot at getting their approval if they financed expensive vehicles and maxed out their credit cards.
- And yes, the cost of caring for children isn’t taken into account if the children were born after the loan was approved. Crazy!
“Process instead of reason” is the way I would describe the CalHFA short sale process. California homeowners are being hurt by a system created to protect them. I guess it’s all in a day’s work in this Bizarro real estate world.
Here’s a link for CalHFA,s short sale package and list of required documents. Remember to write your loan number on every page AND fax the package twice to give them the opportunity to lose it the first time around(wink).