The U.S. Treasury is trying to make short sale more attractive to lenders and homeowners through the “Home Affordable Foreclosure Alternatives Program” or “HAFA” along with the updated HAFA changes for 2011 and HAFA changes for June 2012 supplemental directive. What Treasury is trying to do is help streamline the short sale process by suggesting guidelines to the participating lenders. That’s “suggestions” and “guidelines”. That does not equal “requirements” in the way I read it. Here is a summary of the program, who is eligible, and what you might expect to change if you do qualify for the HAFA program. Remember, I am condensing here and pointing out what might be important to you, the homeowner, as it relates to short sales. There are many details, requirements and forms that make up this new program.


You might be eligible for HAFA if your lender participates in the Home Affordable Modification Program (HAMP), and your mortgage is not underwritten by Fannie Mae or Freddie Mac. HAMP offers you the opportunity for assistance by lowering your payments or delaying payments to keep you in your home. You must meet the HAMP requirements as follows, to be part of HAFA, whether or not you choose a modification. These qualifications are:

  •   You have missed payments or are about to default.
  •   You got your primary mortgage before Jan. 1, 2009
  •   You are a natural person (not a corporation, partnership, LLC etc)
  •   Your mortgage is for a one- to four- unit residential property.
  •   Your property has not been condemned.
  •   Your current unpaid principal balance is less than or equal to
    • $729,750 for a one-unit property.
    • $934,200 for a two-unit property.
    • $1,129,250 for a three-unit property.
    • $1,403,400 for a four-unit property.
  •   You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering       or tax evasion, in connection with a mortgage or real estate transaction.

The HAFA Supplemental Directive states that the servicers (your lenders) have the “option to determine the extent to which short sales or deeds-in-lieu will be offered”.
Expanding on that, HAFA states that a participating lender must follow its investor guidelines to create their own policy, with criteria for your eligibility to include: how cooperative and “motivated” you are, the amount of the loss on your mortgage, and local market conditions, among other things. In addition, HAFA states that it is up to the servicer and investor to decide if allowing you to be in this special short sale program is in their best interest. That tells me they have a lot of leeway in deciding if you will benefit from HAFA at all.

THE GOOD NEWS if you get a short sale through this program, there can be no deficiency judgment later! That will help many leery Bank of America short sale sellers, whose approval letters reference the right to seek a deficiency in the future. More good news- your lender may not ask you for a promissory note or a cash contribution if they participate in HAFA and you do a short sale. More “positives”…

POSITIVE: If you are eligible for this program, and your lender participates, you must be given the chance to do a short sale or deed-in-lieu prior to the lender foreclosing.

POSITIVE: Your lender may determine the acceptable net from your anticipated short sale prior to you participating in the program. This should save time versus a typical short sale, where the lender determines if a contract is acceptable after it is submitted for consideration. The minimum proceeds will be stated in terms of actual dollar amount, percentage of market value or percentage of your list price. In practice, many lenders are choosing not to determine acceptable value prior to receiving a contract. That is a positive, as many markets are still declining, and market value changes continually.

POSITIVE: Your lender will state what closing costs they will pay for the sale in advance. This will save contracts where the buyer asks for too much in closing costs- no wasted negotiating.

POSITIVE: You will receive $3000 relocation incentive upon closing your short sale if you are an occupant at time of closing (this is a June 2012 HAFA program change). The incentive could otherwise go to the tenant or non-borrower dependent living in the property (who must vacate at closing). There is no incentive if the property is vacant.

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