The Home Affordability Foreclosure Alternative Program, HAFA, allows eligible homeowners to complete a short sale as an alternative to foreclosure. The HAFA program provides a number of benefits for eligible sellers including $3,000 cash for relocation, full release from future liability for first mortgage debt, and pre-approved HAFA short sale terms. HAFA has 5 very specific program requirements in order to be elgible. Lenders participating in HAMP are required to offer HAFA, but the program details and implementation may differ between servicers. The HAFA short sale program should offer more attractive and predictable timelines than those found in standard non HAFA short sales.
Are You Eligible for HAFA?
There are 5 very specific guidelines that homeowners interested in pursuing HAFA short sale eligibility must meet. They are:
- The home being sold must be the primary residence.
- Amount owed on the first mortgage must be no more than $729,759.
- Current first mortgage was taken out on or before January 1, 2009.
- Payment on the first mortgage (including principle, interest, taxes, flood and hazard insurance, and homeowner's dues if applicable) is more than 31% of current gross income before taxes and deductions.
- The Homeowner is experiencing a hardship such as job loss, divorce, or medical emergency, and is unable to afford the current home loan.
These eligibility requirements are cited as a guideline and it is highly recommended that anyone considering a HAFA short sale verify their eligibility with the servicer of their loan. Certain HAFA eligibility requirements such as hardship may be open to subjective interpretation on the part of the servicer. You may be able to obtain approval if you are not living in the home due to job relocation more than 50 miles away. The HAFA short sale program is clearly not intended, however, for second homes, income, or investment properties.
Benefits of a HAFA Short Sale
As mentioned above, upon completion of a HAFA short sale, the seller will receive $3,000 in order to help with or defray their relocation costs. Certainly that alone should be more appealing than having an eviction notice placed on your front door. Beyond that, it is a requirement of the HAFA program that the seller is given full release from future liability for first mortgage debt. While California is a non recourse state relative to purchase money mortgage loans, some lenders have included verbiage in their non HAFA short sale paperwork that reads as if the seller is being asked to relinquish or waive that protection. (Consult an attorney prior to signing any non standard paperwork requrired by the lender, servicer, or investor.)
So, in addition to the the $3,000 relocation money, full release from first mortgage debt (no cash contribution, promissory note, or deficiency judgement is permitted in a HAFA short sale), what are the other benefits?
A short sale may not be as damaging to your credit as a foreclosure. Some lenders, such as BofA advertise that upon completion of a HAFA short sale, they will report your loan was "paid in full for less than the full balance". BofA also indicates that if you complete a HAFA short sale, you may qualify for a home purchase again sooner than if your home is foreclosed on. As the credit reporting agencies change their calculation of the FICO score from time to time, these statements may or may not holf true going forward. However, it is almost a certanty that HAFA resolution of the debt will always be more preferable to credit scoring than a foreclosure.
Another benefit of the HAFA short sale is that you may get to stay in your home longer than if you are foreclosed on. During this time if you are not making mortgage payments, you may be able to resolve other debts or save money while not worrying about your home being sold at auction and an eviction notice placed on your front door.
Finally, another benefit is that you will be able to maintain some level of control over the timing of your move to your new home and be able to remove many of the unpredictable elements involved in a standard short sale or a foreclosure and eviction.
Timeline of a HAFA Short Sale
While HAFA is a government program introduced by the Treasury Department in 2009, the servicer of your mortgage implements the program and there may be some variation from lender to lender.
In general, here's what you might expect if BofA is the servicer of your first mortgage. Other lender programs may work differently.
- Submission of full financial package. If you have applied for a loan mod under HAMP, BofA may already have your financials on file. If your loan mod file is already on Equator, which is the internal processing platform BofA uses, you may only have to submit a few other items (such as updated pay stubs, utility bills, etc) in order to get started on HAFA short sale.
- Within 60 days you will receive a Short Sale Agreement and an acceptable sales price if you are accepted into the HAFA program. (Please note, BofA advertsises 30-60 days for HAFA approval).
- You then have 120 days to list your home with a licensed Real Estate Agent and enter into a purchase agreement. (Sorry, you can't do a FSBO HAFA short sale.) BofA indicates that in their HAFA implementation, that you may be able to get an extension if you can not secure a buyer for your home in 120 days.
- Within three days of accepting an offer on your home, the RPA (in California) will be submitted to the bank along with a Request for Approval of a Short Sale document. BofA states that they will respond within 10 days.
- If the offer is accepted, the HAFA short sale is completed and the mortgage and other loans against the home are setteled from the proceeds of the sale.
You may have some questions as to item 4 above. In a HAFA short sale, first the homeowner is approved for HAFA eligibility. Then, when an offer is accepted, the sales contract and terms are approved.
HAFA Short Sale Tips for Sellers
- If you have not already submitted a loan modification package you will need to prepare your financial information for submission. Typically, this will include 2 years of tax retruns, current pay stubs (if you are working), a detailed list of all your outstanding credit card debt, car loans, student loans and any other debt you may owe. You will also need to provide a full accounting of you monthly expenditures for such items as food, gas, child care, etc.
- If you have a second mortgage or HELOC that is with a different lender, many servicers (BofA for example) will require that you (or your agent) receive a release from that loan separately. If you have a first and second with BofA they will usually handle both for you.
- List your home for sale as soon as you dedice to do a short sale. Even if you are not eligible or approved for HAFA, you can still try to do a standard short sale which may still be preferable to foreclosure.
- Engage a Real Estate Agent who specializes in short sales as early as possible in the process. The agent or negotiator working with the agent should have familiarity with your lender's processes and systems.
- Return collection calls from the lender and let them know that you have initiated a HAFA short sale or that your home is currently listed for sale as a short sale. While the collector can often to nothing more than note the file as such, it is still better than not communicating.
- Even if you have received a NOD (notice of defauly), it is still not too late to start the HAFA short sale process. While there are no guarantess, most servicers will not foreclose if you have a valid purchase agreement and an open escrow.
- There are higher first loan limits available if you occupy one unit of a 1-4 unit residence.
- If you can not complete a HAFA Short Sale, you may be offered an option of a deed in lieu of foreclosure. Consult your attorney as to whether that might be a viable solution for you.
The purpose of the HAFA short sale program is to provide an alternative for homeowners who are not able to complete a HAMP or other loan modification. For some, who realize that they will no longer be able to afford their mortage payements, they may skip the loan mod step and proceed directly to initiating a HAFA short sale. Others may elect to try a loan modification first.
HAFA was implemented in order to take a lot of the guesswork out of the short sale process. Previous to HAFA many short sales dragged on for months without any resolution creating uncertainty for both buyers and sellers. It is the hope of everyone involved in the process that HAFA is a significant improvement to the short sale process.
If you need to list and sell your home as a short sale in Los Angeles or Orange County.....
Call Ellis Posner (dre # 01416970). Ellis Posner specializes in representing buyers and sellers of distressed properties including short sales, REOs, and probate sales. Ellis Posner can help you buy or sell a home, acquire investment income property or rent or lease a condo, townhouse or single family home. Call 310 975 5139 or email email@example.com. Experience counts. Call Ellis Posner for "straight talk" on Southern California Real Estate.
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