LMLC, Inc. | Loan Modification and Short Sale Experts | California

How will HAFA improve the short sales process?

Answer

The US Treasury designed HAFA to:

·         Complement HAMP by providing a viable alternative for homeowners who are eligible for HAMP, but nevertheless are unable to keep their home.

·         Can use borrower financial and hardship information already collected in connection with consideration of a loan modification under HAMP.

·         Allows homeowner to receive a pre-approved short sale price before listing the property.

·         Requires lenders and loan servicers to fully release homeowner from future liability for all mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed). Lenders may not require contributions from either the real estate agent or borrower/seller as a condition for releasing its mortgage lien and/or releasing the homeowner from personal liability.

·         Uses standard processes, documents, and timeframes or deadlines.

·         Provides financial incentives: $3,000 for the homeowner to assist in relocation costs; up to $2,200 for servicers to cover administrative and processing costs; and up to $2,000 for investors for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders.

Question

How can I be considered for HAFA?

Answer

A loan servicer must consider every potentially eligible homeowner for HAFA within 30 calendar days of any the following:

·         The borrower does not qualify for HAMP.

·         The borrower does not successfully complete a HAMP Trial Period.

·         The borrower has missed at least two payments on a permanent HAMP modification.

·         The borrower requests a short sale or Deed-in-Lieu of Foreclosure.

However, before evaluating a homeowner for HAFA, a participating servicer must first consider that homeowner for other loan modification or home retention programs that they offer. In addition, pursuant to the servicer's policies, every eligible homeowner must be considered for HAFA by a participating servicer before the homeowner’s loan is referred to foreclosure and before the servicer may allow a pending foreclosure sale to continue.

Question

Who is eligible?

Answer

The borrower must meet the basic eligibility criteria for HAMP. However, loan servicers are no longer required to verify a borrower’s mortgage payment exceeds 31% of monthly gross income.   Other eligibility requirements include:

·         The homeowner’s property may be vacant up to 12 months before the date of the short sale agreement, only if the borrower documents that it was their principal residence and they have not purchased another 1-4 unit property in the prior 12 month period.

·         The lender on the first mortgage must be short (the amount owed is more than the value of the property), and the loan must have been originated before January 1, 2009.

·         Mortgage must be delinquent or an imminent default is reasonably foreseeable due to a financial hardship the homeowner is able to document.

·         Unpaid principal balance must be no more than $729,750 (higher limits for 2 to 4 unit dwellings).

·         If Fannie Mae owns the first mortgage, then the homeowner is ineligible for HAFA if they have:

o    The ability to make mortgage payments, but choose not to do so (strategic default).

o    Substantial unencumbered assets or significant cash reserves equal to or exceeding 3 times borrower’s total monthly mortgage payment or $5,000, whichever is greater.

o    High surplus income.

o    A foreclosure sale date within the following 60 days, without Fannie Mae’s approval.

·         If Freddie Mac owns the first mortgage, then the following additional eligibility requirements apply:

o    The homeowner must be more than 60 days delinquent on the first mortgage.

o    Borrower’s cash reserves must be less than the greater of $5,000 or 3 times the current monthly payment.

Question

What is the effect of foreclosure on HAFA eligibility?

Answer

A foreclosure may be initiated by a loan servicer while a homeowner is considered for HAFA eligibility, but a foreclosure sale may not be completed during this time.  In some cases the lender or investor who owns the mortgage may dictate that if a foreclosure sale date has already been set, the homeowner will not be considered for a short sale. If Freddie Mac owns the loan however, then the loan servicer must consider an eligible, qualified homeowner for HAFA before the mortgage is even referred to foreclosure.

Question

How does the HAFA Deed-in-Lieu of Foreclosure work?

Answer

With the Deed-in-Lieu of Foreclosure, the homeowner voluntarily transfers ownership of the property to the servicer in full satisfaction of the total amount due. The servicer may require that the homeowner list and market the property before they agree to a deed-in-lieu arrangement.  In order for the Deed-in-Lieu of Foreclosure to work, the homeowner must provide a marketable title, free and clear of other mortgages, liens, or other encumbrances.

Question

What are the typical timeline requirements for participating in HAFA?

Answer

 If the loan servicer determines the homeowner appears to qualify for HAFA, it must complete and send the homeowner a Short Sale Agreement (SSA) no later than 30 calendar days from the date the homeowner was first considered for a HAFA short sale.  The homeowner has 14 calendar days from the date of the SSA to sign and return it to the loan servicer.  However, if a homeowner submits a short sale sales contract to the loan servicer before receipt of the SSA, the loan servicer is now required to communicate approval, disapproval, or a counter offer no later than 30 calendar days after receiving an (i) executed sales contract, (ii) Alternative Request for Approval of Short Sale (ARASS), and (iii) a signed Hardship Affidavit.  The SSA must give the homeowner an initial period of 120 days to sell the home (extensions permitted up to a total of 12 months, if agreed to by the homeowner). Within 3 business days of receiving an offer, the homeowner must submit a completed Request for Approval of Short Sale (RASS) to the servicer, including (i) a copy of the sale contract and all addenda; (ii) buyer documentation of funds or pre-approval/commitment letter from a lender; and (iii) all information on the status of subordinate liens and/or negotiations with subordinate lien holders.  Within 10 business days after the servicer receives the RASS and all required attachments, the servicer must approve or deny the request and advise the borrower with reasons for denial.

Question

 What are the deadlines for closings and releasing the mortgage lien?

Answer

 The loan servicer may require the closing to take place within a reasonable period after it approves the Request for Approval of Short Sale (RASS), but not sooner than 45 days from the date of the sales contract unless the borrower agrees.  If the first mortgage is owned by Fannie Mae, the close of sale must be no later than 60 days after the contract execution or approval, whichever occurs later. Any extension requests must be approved by Fannie Mae.  If the first mortgage is owned by Freddie Mac, then the close of sale must not be later than 60 calendar days from date of contract (Freddie Mac may review exceptions). The loan servicer should follow local or state law to time the release of its first mortgage lien after receipt of sale proceeds. If local or state law does not include a deadline, the servicer must release its first mortgage lien within 30 business days. The investor must waive rights to seek deficiency judgment and may not require a promissory note for any deficiency.

Question

What are the fees or costs to the homeowner for participating in a HAFA short sale of their home?

Answer

It is absolutely free to do a HAFA short sale.  There are no fees or costs that are charged to the homeowner for participating in a HAFA short sale.  In fact, since December 28, 2010, none of the associated vendor or negotiator costs associated with a short sale are able to be charged to the homeowner.  Furthermore, all real estate commissions are paid by the lender in a short sale up to a maximum of 6% of the contract sales price (the usual maximum amount charged in a residential real estate transaction). Neither buyers nor sellers may earn a commission in connection with the short sale, even if they are licensed real estate brokers or agents. They may not have any side deals to receive a commission indirectly. A broker or agent may only earn a commission, on either the buyer or seller side, if the represented party is unrelated and unaffiliated.  Also, under HAFA, an agent is not permitted to rebate any funds or commission to either the borrower or the buyer from the sale of the property.

Question

May a lender with a second or third mortgage on my home seek additional contributions from the real estate agent or the homeowner as a condition for releasing their mortgage lien or releasing the homeowner from personal liability?

Answer

No. Such a lender is only allowed to receive $6,000 from the first mortgage lender participating in HAFA as payment in full of a second or third mortgage debt. Any payments to junior lien holders must be shown on the HUD-1, as required by RESPA.

Question

What else should I know about doing a short sale via HAFA?

Answer

·         The sale of the property must be an “arm’s length” transaction between parties who are unrelated and unaffiliated by family, marriage, or commercial enterprise.  

·         The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end of 2012, however, the tax may not apply. Forgiven debt will not be taxed if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Check with a tax advisor or the Internal Revenue Service.

·         The servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment. There will be a negative effect on credit scores.

·         Buyers may not turn around and sell the property within 90 days after closing (no “flipping”).

Question

When does the HAFA Short Sale opportunity END?

Answer

Short Sale Agreements must be executed and returned to the servicer no later than 12/31/2012.