(HAFA) Home Affordable Foreclosure Alternatives
Lender and Homeowner Incentives:
U.S. Treasury to provide incentives to borrowers and lenders. This includes the servicer to receive $1000 to cover administrative and processing costs for successful Short Sale and $1000 toward the release of junior liens and best of all, $1500 for borrowers for relocation assistance.
Streamline and Simplify Short Sale Process:
Allows borrowers to receive pre-approved short sale terms before listing the property (including the minimum acceptable net proceeds). Also, it requires all servicers participating in HAMP (Home Affordable Modification Program) to impliment HAFA in accordance with their own written policy, consistent with investor guidelines.
Lenders are to give 90 days to one year to market the property and are prohibited from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
The program does not take effect until April 5, 2010, but servicers may implement it before then if they meet certain requirements. The program sunsets on December 31, 2012.
For a list of HAMP participating servicers, visit www.hopenow.com or makinghomeaffordable.gov.
1. Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as an interest rate reduction for a set period of time, usually between 2 to 5 years. For assistance with a loan modification, it is recommended that you speak with a HUD Certified Counselor by calling 800-569-4287.
When a loan modification still isn’t enough to relieve your financial problems, a short sale is the next best option to consider if your property is worth less than the total mortgage you owe on it. You must have a financial hardship, such as a job loss, business failure, mortgage payment increase, divorce or death, illness, relocation, reduced income, mortgage fraud, predatory lending, or major medical bills.
2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional* and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won't try to take advantage of your situation or pressure you to do something that isn't in your best interest.
A qualified real estate professional can help you to determine which workout options are best for your situation and speak to your lender on your behalf. For a short sale, the home will have to be put on the market, usually for at least 60 days. Also, help you to submit a complete short sale package and help you set an appropriate listing price for your home, market the home, and negotiate a contract with the buyers that is consistent with the lender(s) approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.
3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include a hardship letter detailing your financial situation and why you need the short sale, a copy of the purchase contract and listing agreement, proof of your income and assets, and signed copies of your federal income tax returns for the past two years.
4. Prepare buyers for a lengthy waiting period. Even if you're well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to several months. Some experts estimate that if you have only one mortgage, the review can take about two months and with a first and second mortgage with the same lender, the review can take about three months. With two or more mortgages with different lenders, it can take four months or longer.
When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)
5. Don't expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:
- You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
- Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
- Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.
Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.
If you're thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won't cover your total mortgage obligation and closing costs, and you don't have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.
