Any Real Estate professional who engages in short sale negotiations, is fully aware of just how frustrating the process can be if even possible.
There are financial incentives for mortgage servicers to drag the process out as long as possible. It takes weeks, sometimes months, to get a response from the banks, who often misplace packages and request that they be faxed over and over again. This week, however, the U.S. Treasury has issued guidance in its new Home Affordable Foreclosure Alternatives Program (HAFA) which takes effect April 5, 2010. In short, HAFA provides incentives in accepting a short sale or a deed-in-lieu of foreclosure (DIL) on a loan eligible for modification under the Home Affordable Modification Program (HAMP). HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, who will be implementing their own versions of HAFA.
Highlights of the benefits of the HAFA program are as follows:
Servicers will have 10 days to approve or disapprove a request for a short sale. The banks will have to use borrower financials and other documents already submitted for a loan modification for short sale review.
Allows borrowers to receive pre-approved short sales terms before listing the property, including the minimum acceptable net proceeds for that servicer, which will allow real estate agents to better market the properties for approved sales.
Prohibits servicers from requiring a reduction in the real estate commission which was agreed upon in the listing agreement, up to 6 percent of sales price.
Requires borrowers to be fully released from future liability for the first mortgage debt, no cash contribution, no promissory note, or deficiency judgment is allowed.
The program will use standard processes, documents, and timeframes/deadlines in order to streamline the review and decisions.
Caps proceeds to second lien holders at $3,000.00.
Provides financial incentives:
$1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investor, note holders.
Program Requirements:
Loan must be HAMP eligible – Servicers must evaluate a buyer for a HAMP modification first before giving any consideration for a HAFA short sale or Deed in Lieu (DIL);
Property is borrower’s principal residence;
The mortgage is a first lien and was originated before January 1, 2009;
The loan must be delinquent or default must be reasonably foreseeable;
Loan amount is limited to 729,750, on single family units;
Borrower’s total monthly payment exceeds 31 percent of the home owner’s income and attested to by affidavit;
Sale must be an arm’s length agreement and the buyer must agree not to sell the property for 90 days;
Requires property to be listed with a real estate broker.
While trying to alleviate the back log of short sale transactions there are some new concerns. The cost to the public to impliment. The arm’s length rule eliminates family members attempting to save the home. The 90 day prohibition against resale will keep real estate investors from participation which plays a major role in moving properties. Lastly, there is the question as to how many second lien holders are going to participate with their payments limited to $3,000.00. Without their participation, it will be an exercise in futility as many of these homeowners have more than one loan.
