Homeowners struggling to sell their homes in a short sale are getting some relief, thanks to the federal government’s Home Affordable Foreclosure Alternatives (HAFA) program.
Up to now, many short sales — in which the lender accepts a sale of the property for less than the full amount owed — have taken months to complete. Sometimes, the complex and lengthy process has failed, resulting in foreclosure.
HAFA establishes streamlined short-sale rules and provides incentives for borrowers and lenders to work together to avoid foreclosure. The rules — in effect between April 5, 2010, and Dec. 31, 2012 — also are intended to speed up the short-sale process.
Before HAFA, homeowners often listed their home for sale without an idea of what the lender would accept.
Under HAFA, borrowers receive pre-approved short-sale terms from the lender before putting the home on the market.
The HAFA guidelines apply to lenders that voluntarily participate in the Home Affordable Modification Program (HAMP). The Department of Housing and Urban Development says more than 100 servicers have signed up to participate in HAMP, covering more than 89% of mortgage debt outstanding in the country.
To be eligible for HAFA, homeowners must first apply for a loan modification through HAMP. Owners who do not qualify for a loan modification or miss payments during the initial loan-modification period qualify for HAFA.
Other HAFA requirements include:
• Property is principal residence.
• Mortgage originated before Jan. 1, 2009.
• Mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.
• Borrower is delinquent or default is foreseeable.
• Homeowner demonstrates hardship.
• Borrower’s total monthly housing payment exceeds 31% of gross income.
• Unpaid principal does not exceed $729,750.
According to HAFA rules, lenders now must offer a short sale in writing to the borrower within 30 days if the borrower does not qualify for or complete a loan modification. Borrowers then must respond within 14 days to the lender’s short-sale agreement.
When a purchase offer is made, borrowers must submit the sales contract to the lender within three days, along with the buyers’ mortgage pre-approval and the status of negotiations with other lien holders on the seller’s property.
Finally, lenders must approve or deny the contract within 10 days.
HAFA rules also state that lenders must release borrowers from the obligation to repay the difference between the sales price and the loan amount. No deficiency judgments are allowed for a first or second loan.