What is a HAFA Short Sale?
Over the last four years or so I have been helping numerous sellers successfully complete a short sale in and around the Metrowest Massachusetts area. Short sales are not for the timid at heart and require quite a bit of knowledge of proper procedures in order to get to the closing table.
Lately I have been getting asked more often what exactly is the HAFA program as it relates to short sales. I figured I would give anyone thinking about possibly short selling their property and easy to understand explanation.
In a nutshell, HAFA stands for the Home Affordable Foreclosure Alternatives Program
The treasury department rolled out the HAFA program in 2009 but it did not go into effect until April of 2010.
A HAFA short sale provides incentives in connection with home owners who are completing a short sale or a deed-in-lieu of foreclosure to avoid a foreclosure on a loan eligible for modification under the HAMP program.
So now you are probably wondering what in the world the HAMP program involves? HAMP stands for Home Affordable Mortgage Program. The HAMP program was put in place to help those home owners who have run into financial difficulty to modify or refinance their mortgage. The goal of the HAMP program was to make it easier for a borrower to continue to make their monthly mortgage payments and keep their home.
By most accounts the HAMP program has been regarded as a failure so far. There are staggering amounts of borrowers who have been rejected under the program and not allowed to refinance into a lower mortgage payment.
Personally, I have spoken with numerous folks who have tried to get their loan modified without success. The end result has been for these home owners to pursue a short sale. For more information on HAMP see the government website at home affordable mortgage program.
Now that you have the basic understanding of the Home Affordable Mortgage program let me continue with explaining the Home Affordable Foreclosure Alternatives Short Sale Program (HAFA) with some of the benefits to those involved.
Home Affordable Foreclosure Alternative Provisions
- Requires borrowers to be fully released from future liability for the first mortgage debt. The home owner is not required to sign a promissory note and there is no deficiency judgment allowed. The borrower also does not have to contribute any cash either. This is obviously a huge part of the program for anyone completing a short sale! In fact this is the biggest reason why any seller would want to apply for a HAFA Short Sale if they qualify.
- Provides a number of financial incentives including $3000 to the borrower for relocation assistance. You read that correctly. The seller can get a check for $3000!. Servicers can get $1500 to cover processing and administrative costs and investors can get up to $2000 when they allow up to$6000 in short sale proceeds to go to any 2nd or 3rd lien holders on a one for three matching basis.
- Complements HAMP by providing a viable alternative for homeowners who are HAMP eligible but nevertheless unable to keep their home.
- Uses the home owners financial and hardship information already collected in connection with consideration of a HAMP loan modification.
- Allows home owners to receive pre-approved short sales terms before listing the property including the minimum acceptable sale price and/or net proceeds.
- Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
HAFA also has been recently modified so that:
- Those seeking a short sale must get an answer within 30 days.
- Servicers are no longer required to verify a borrowers financial information.
- Servicers are no longer required to determine if the Debt-to-Income (DTI) exceeds 31%.
- Second lien holders no longer must accept 6% of the unpaid balance.
Lenders Participating in the HAFA Short Sale program
You may now be wondering if your lender is an active participant of the Home Affordable Foreclosure Alternatives Program. For a list of lenders who are participating in this short sale program see Lenders participating in HAFA. Please understand that if your lender is on the list it does not necessarily mean that you will be able to qualify for the HAFA short sale program. In order to qualify you MUST meet the HAFA guidelines.
Completing a short sale remains a much better option than letting a property go to foreclosure for a number of reasons centering around credit and your ability to buy another property in the future. The Home Affordable Foreclosure Alternatives program is something every seller should consider when short selling their home.
When considering your financial options it makes sense to see if you qualify for a HAFA Short Sale!
I am successfully completing short sales through out the Metrowest Massachusetts area as well as parts of Worcester County. As of this writing in almost five years, knock on wood, I have a 100% success rate for short sale approval!
I work hand in hand with a local short sale Real Estate attorney who knows how to get short sales done! I will admit there is some luck involved in my success rate but the team I have put together does a stellar job.
If you are outside of the Metrowest Massachusetts area or even in another state and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.
Other short sale articles worth a look:
About the author: The above Real Estate information on Home Affordable Foreclosure Alternatives Program (HAFA) was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at email@example.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.
Bill: You know me… always a sucker for an article or post about short sales. One thing that I have noticed is that many individuals think that because the participating lender in on the list, then they will actually participate. The key is the investor note holder. For example, B of A participates in HAFA, but they have over 200 investors and not all of them participate. I’ve been lost in this labyrinth of confusion several times, and it’s no fun. That being said, HAFA is a great program and this is a fantastic overview. Have a great weekend!
Thanks for dropping in Melissa! You are right on the money of course with the investor actually being the decision maker on whether or not they will participate in the HAFA guidelines. HAFA is a terrific program that seems to have finally gotten off the ground!
As always, great post Bill! Considering your short sale success rate, I am curious as to how you deal with getting a second lien holder to agree to a short sale when the lender has placed mortgage insurance on the loan. As someone who exclusively handles short sales, I am running into second lien holders who are killing my deals because they would rather collect on the insurance proceeds than accept the amount allowed (typically $3,000) by the first lien holder. Unless the home0wner is in a position to make a substantial contribution towards the second lien payoff, and most are not, the short sale fails because the second lien holder purchased insurance against the default and would rather collect these proceeds than agree to a short sale. Any thoughts or suggestions on how to address this issue are much appreciated. Keep up the great posts!
Excellent short sale question Andrew. Since I do not handle the negotiations directly I will check with the short sale attorney I am using to see what their experience is with this situation. I would suspect in some short sale instances it would make sense to get the 1st lien holder to give a little more to the 2nd lien holder.