Short Sale Blog

On November 30^th, 2009, the Obama administration, through the Treasury Department’s Home Affordable Modification Program (HAMP), unveiled a new program to encourage lenders to do more short sales and deed-in-lieu’s.

The new program, called Home Affordable Foreclosure Alternatives Program  (HAFA) provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu to settle their accounts.

Here are the main elements to the program:

• Short Sale Pre-Approvals
• Guaranteed 6% Commissions
• $3,000 Homeowner Relocation Payment
• Full Satisfaction of all Senior and Junior Liens

Even though the stated goal of the HAFA program was to simplify the short sale approval process, this is actually a fairly complicated program. Here are the steps in the HAFA short sale process:

1. The loan servicer must first evaluate a borrower’s eligibility for a HAMP loan modification (the requirements are that it must be a principal residence, be a delinquent loan or soon-to-be, have a principal less than $729,750, and a DTI over 31%)
2. If the borrower does not qualify for a trial loan modification, does not complete a trial modification, or directly requests a short sale, a HAFA short sale evaluation is initiated.
3. The servicer contacts the borrower to inform them of their short sale and DIL options. The borrower must respond to the servicer within 14 days.
4. The servicer then does a BPO or an appraisal of the property.
5. The servicer also does a review of title to identify subordinate liens and determine whether the borrower will be able to deliver clear title.
6. The servicer uses the previously submitted financial information from the borrower’s HAMP loan modification request to determine eligibility for the HAFA short sale program.
7. The servicer then determines a minimum acceptable net proceeds that they will accept for the transaction.
8. The servicer creates the Short Sale Agreement (SSA) and sends it to the borrower. The SSA includes the following:  the approved list price or acceptable net proceeds,  the allowable time to market the property (between 4-12 months), the allowable commissions, the allowable amount to be paid to junior lien holders, and the amount, if any, that the borrower will be required to pay during the term of the SSA (not to exceed 31% of the borrower’s gross monthly income).
9. The HAFA Request for Approval of a Short Sale (RASS) is also sent to the borrower. The RASS is submitted to the servicer when an offer has been received.
10. The borrower must sign the SSA within 14 days, and agree to actively market the property with a listing agent, maintain the property, and work to clear all junior liens and title impediments. After an offer is received, it is sent to the servicer, along with the RASS, and all information regarding the status of junior liens.

Within ten business days of receipt of the RASS, the servicer is to determine their response. If the net proceeds are higher than the amount listed in the SSA, it must be approved.

At a minimum, 45 days are given for closing.

In the case where a borrower gets an offer on their house prior to receiving a SSA from their servicer, the form called the Alternative Request for Approval of Short Sale (Alternative RASS) is to be used.

The main challenge to this program is that it is voluntary for the loan servicers. Frankly, the servicers are still overwhelmed with short sale files, and the timelines issued in this directive will be very hard to meet.

In addition, it will be very difficult to carry out for properties with multiple liens. First of all, the HAFA program states that the borrower is in charge of getting the junior liens released. Secondly, it mandates that the junior lien holders cap their payment at $6,000 and release the borrower of all future liabilities, all for a payment of a lowly $1,000. With many junior lien holders currently receiving $10,000-$20,000, while retaining deficiency judgment rights, it is hard to see how HAFA will help multiple lien short sales.

For assistance in completing your short sale negotiations, please submit either the Homeowner Contact Form or the Agent Contact Form.