Kids Don‘t Count: What You Need To Know About CalHFA Short Sales

By
Real Estate Agent with Realty Executives Alliance

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).

http://www.calhfa.ca.gov/myaccount/hardship/shortsale.pdf

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T: 714.474.5123 | Email: Brenda@BrendaUAvila.comWebsite: http://BrendaUAvila.com |CA DRE Broker Lic: 01141420 RE/MAX TIffany Real Estate| 5925 Ball Road |Cypress, CA, 90630

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Comments (17)

Ute Ferdig
Ferdig Real Estate Solutions - Auburn, CA
Because Getting It Right Matters!

Thanks for sharing this info.  I am in the beginning stages of a short sale involving a CalHFA in first place.  Haven't dealt with them before.  When I called the servicer, they told me that the borrower would have to get a loan modification first.  The borrower was told the same thing.  That was before I knew it was a CalHFA loan.  I read in the CalHFA short sale package that one of the requirements for the short sale is that they are not attempting to get a loan modification.  When you tried to do the short sale with CalHFA did they ever force your clients to apply for a loan modification first?  Just curious. 

It also looks like the short sale package is sent directly to CalHFA, not to the servicer.  Is that your understanding as well? 

Thanks again for posting this info.  Very helpful.

Mar 26, 2012 06:48 AM
Rocky Rockhill
Scott & Quinn Real Estate - San Diego, CA

Thank you for your very educational (if horrifying) post. I appreciate you taking the time to share this information; it is incredibly helpful.

Jan 26, 2013 09:55 PM
Lexie Longstreet
Savvy + Co. Real Estate - Charlotte, NC

Excellent Information!  And even though I am not in California... I wish we had access to this type of info, qualifications for short sales from every Bank.   It would safe so many days and weeks of work from everyone involved.  In fact if each bank just made a list of qualiications...this whole process could just take hours instead of months.   What a concept!

Jan 26, 2013 10:09 PM
Terkel Sørensen
Real Estate Places - Temecula, CA
Realtor, 951.805.0773 , Bank owned and Short Sales

Hey Brenda, usually, living in CA involves sunshine and a run on the beach... This one though, I gotta go try to wash that nasty taste out of my mouth, thanks for the heads up, always treated CalHFA as something good for us.

Jan 26, 2013 11:01 PM
Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team

Excellent information.  Thank you so much for this post.  I have suggested and have taken notes to the drawbacks!

Jan 26, 2013 11:08 PM
Tina Gleisner
Home Tips for Women - Portsmouth, NH
Home Tips for Women

Very informative & a very sad story showing how broken the process is.

 

PS Not sure why everyone isn't uploading all their documents to DropBox or Box.net ... so when they say they didn't get it, you can forward link to prove you did, and let them download (if possible) to avoid faxing over & over & over ...

Jan 26, 2013 11:33 PM
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

CALHFA Sort Sales are definitely different.

I've been told by a short sale lender on a Freddie Mac loan that an increase in family size would not be considered too.    We sure don't make it easy for parents.   

Jan 26, 2013 11:49 PM
Lanise Warrior-Johnson
Real Estate Brokers Services, Inc. - Compton, CA
Real Estate Specialist

Thanks for sharing this information regarding CALHFA short sales. 

Jan 27, 2013 12:47 AM
Keith Ritter
Keller Williams Profesional Partners Glendale AZ Real Estate Peoria/Realtor - Glendale, AZ
602-908-5020 AZ Realtor, Glenndale AZ Real Estate

Wow! Thank you for this information! I have so many family members in CA that ask me questions and my response is always "I don't know California Law, but I will find someone who does." I will surely remember you. 

Jan 27, 2013 01:02 AM
Ann Wilkins
Golden Gate Sotheby's International Realty - Oakland, CA
Oakland, Berkeley, Piedmont CA

Great information - thanks for such a detail yet concise outline of the requirements.

Jan 27, 2013 01:46 AM
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Informative and a very sad circumstance to your client but thank you so much for educating me about the CALHFA and the resources to more information.

Jan 27, 2013 01:46 AM
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Thanks so much for sharing your experience with CALHFA short sale. Yes, it is true, lenders do not consider children a hardship even if the parents must pay for childcare while working. I've had a short sale (not CALHFA) declined for same reason. 

Jan 27, 2013 06:13 AM
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Yes, having children is a choice. But it appears that this couple could "afford" those children at the time they were born. What a broken mess the mortgage industry has turned into!

Something I've wondered... what kind of people work in those jobs? Do they go home at night and feel like jerks because they refused to help someone who is doing their best in this economy? Or do they feel justified in saying "No" to so many people?

Jan 27, 2013 03:23 PM
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Brenda, our experience is most hardships work if the financial support it.

Jan 27, 2013 06:46 PM
Lehel Szucs
All Seasons Real Estate, Inc. - Covina, CA
REALTOR of choice

hope never to run across one of these ... yikes ... had some crazy short sales but this one seems crazier than all of them ... good luck to you and than k you for sharing

Jan 28, 2013 02:49 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

So let me guess they will foreclose and CalFHA will loose more money than if they had just done the short sale.

Jan 31, 2013 02:21 AM
Paddy Deighan MBA JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

hard to imagine that a state agency wiuld deny short sales or loan mods to people wtihin the state...

Jan 31, 2013 03:49 AM