The new federal guidelines for short sales, called HAFA [Home Affordable Mortgage Alternative] came into being November, 2009 and just recently became operational. Most loan servicers and banks are now using HAFA.
What’s So Great About HAFA?
Really, what’s the big deal? Everybody knows short sales are tedious, take forever and are a last resort for the homeowner, right? Not exactly–HAFA does streamline the process, shorten the time periods and provide significant incentive s for both short sellers and their banks. In short, it’s a win-win for all parties.
If you’re a homeowner considering a short sale, then, it’s a fairly big deal, assuming that it works out as envisaged by the federal government. Home sellers can get up to $3000 in relocation money from the transaction. That’s very helpful to distressed homeowners who may want to rent and need to pay a deposit. And, another very big deal is that homeowners would be guaranteed from their banks to have no deficiency judgments. Coupled with the 2007 law foregoing any tax on defaulted income, that leaves short sellers really free and clear once they close escrow on their underwater properties.
What Do the Banks Get Out of HAFA?
We have to ask why would the banks want to do this? What’s in it for them? Here, too, are some very positive reasons. Banks prefer short sales over foreclosures because banks save about 20% on average by doing the short sale. This program simplifies the process, streamlines it, and allows the mortgage servicers $1500 to cover administrative costs with an additional $2000 to the investor who actually owns the loan. Banks do better with this program. Altogether, sellers, servicers and investors are collecting $6000 on each HAFA transaction. Not too shabby.
Now the Big One: Who is Eligible?
If your principal residence qualified for a loan mod under HAMP [Home Affordable Modification Program] and you can’t pay or have fallen behind you are eligible. If this is an investment property or rental, you are not eligible. If your loan is FHA or VA, you are not eligible. Both FHA and VA have their own short sale programs with different rules.
Having applied for the HAMP program is crucial. If you applied and were rejected, you are eligible. If you entered a trial period and fell by the wayside, you are eligible. If you received a permanent loan mod under HAMP and have missed at least two payments, you are eligible.
Let’s say, you discover you probably are not eligible for HAMP or HAFA, what should you do? Don’t worry. The servicer will still do a short sale; it will simply not be using the HAFA guidelines. We’ve been doing what seems like zillions of short sales for the past three years, so the process there has become more streamlined as well. If you need help or want to do a short sale, make sure to call me at 626-641-0346. I can even help if you are outside of California.
Oh-one last thing-if you are an investor who would like to purchase a HAFA short sale then flip it, you must wait for 90 days.
Here’s the National Association of Realtors’ video on the topic