In the Supplemental Directive 09-09 revised April 3rd 2010, under the HAMP guidelines the Treasury Department has begun to clarify and/or otherwise attempt to streamline the short sale and Deed in Lieu process with HAFA (Home Affordable Foreclosure Alternatives Program).

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the mortgage. The short sale must be an arm’s length transaction with the net sale proceeds (after deductions for reasonable and customary selling costs) being applied to a discounted (“short”) mortgage payoff acceptable to the servicer. The servicer accepts the short payoff in full satisfaction of the total amount due on the first mortgage.

In a Deed-in-Lieu of foreclosure (DIL), the borrower voluntarily transfers ownership of the mortgaged property to the servicer in full satisfaction of the total amount due on the first mortgage. The servicer’s willingness to approve and accept a DIL is contingent upon the borrower’s ability to provide a marketable title, free and clear of mortgages, liens and encumbrances. Generally, servicers require the borrower to make a good faith effort to sell the property through a short sale before agreeing to accept the DIL. However, under circumstances acceptable to the investor, the servicer may accept a DIL without the borrower first attempting to sell the property. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

The HAFA program simplifies and streamlines the use of short sales and DIL options by incorporating the following unique features:

  • Complements HAMP by providing viable alternatives for borrowers who are HAMP-eligible.
  • Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.
  • Allows the borrower to receive pre-approved short sale terms prior to the property listing.
  • Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.
  • Requires that borrowers be fully released from future liability for the debt.
  • Uses standard processes, documents and timeframes.
  • Provides financial incentives to borrowers, servicers and investors.

A loan meets the basic eligibility criteria if all of the following conditions are met:

  • The property is the borrower’s principal residence, except that the property can be vacant up to 90 days prior to the date of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (Alternative (RASS) or DIL Agreement if the borrower provides documentation that the borrower was required to relocate at least 100 miles from the property to accept new employment or was transferred by the current employer and there is no evidence indicating that the borrower has purchased a one- to four-unit property 90 days prior to the date of the SSA, Alternative RASS or DIL Agreement;
  • The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
  • The mortgage is delinquent or default is reasonably foreseeable;
  • The current unpaid principal balance is equal to or less than $729, 750; and
  • The borrower’s total monthly mortgage payment (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower’s gross income.

Pursuant to the servicer’s policy, every potentially eligible borrower must be considered for HAFA before the borrower’s loan is referred to foreclosure or the servicer allows a pending foreclosure sale to be conducted. Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower:

  • Does not qualify for a Trial Period Plan;
  • Does not successfully complete a Trial Period Plan;
  • Is delinquent on a HAMP modification by missing at least two consecutive payments; or
  • Requests a short sale or DIL.

In such cases in which the borrower/client desires the option of a short sale, The John W. Persse Law Group will conduct the basic same process of approval as it does for a loan modification. It is imperative the all qualifications are met and a complete hardship package is submitted to the lender meeting the HAMP and subsequent HAFA guidelines. As noted above, the Lender MUST render a short sale minimum acceptable price it is willing to accept upon approval. This step is a critical change from the past in which homeowner’s and buyers were left for months and months waiting for an answer to a contract offer and in many cases the buyers simply walked away.
The Short Sale Approval (SSA) is to be valid for no less than 120 days from issuance.

At a minimum the SSA must include the following:

  • A fixed termination date not less than 120 calendar days from the effective date of the SSA (“Effective Date”). The Effective Date must be stated in the SSA and is the date the SSA is mailed to the borrower. The term of the SSA may be extended at the discretion of the servicer up to a total term of 12 months if agreed to by the borrower, in accordance with the requirements of the investor.
  • A requirement that the property be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
  • Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
  • The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.
  • The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and when applicable, notification that the servicer retained a contractor to assist the listing broker with the transaction along with the payment amount (expressed as a fixed dollar amount or percentage of the contract sales price) if paid from sale proceeds.
  • A statement by the borrower authorizing the servicer to communicate the borrower’s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.
  • Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or third parties.
  • Notice that the sale must represent an arm’s length transaction and that the purchaser may not sell the property within 90 calendar days of closing, including certification language regarding the arm’s length transaction that must be included in the sales contract.
  • An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.
  • An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $3,000, which will be deducted from the gross sale proceeds at closing.
  • Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.
  • Notice that a short sale may have income tax consequences and/or may have a derogatory impact on the borrower’s credit score and a recommendation that the borrower seek professional advice regarding these matters.
  • The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA, which amount must not exceed 31% of the borrower’s gross monthly income.
  • An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure sale.
  • Terms under which the SSA can be terminated.

Borrower Obligations

The borrower must sign and return the SSA within 14 calendar days from its Effective Date along with a copy of the real estate broker listing agreement and information regarding any subordinate liens. In returning and signing the SSA the borrower agrees to:

  • The John W. Persse Law Group will provide all completed information and the client will sign documents required to verify program eligibility.
  • Cooperate with the listing broker to actively market the property and respond to servicer inquiries.
  • Maintain the interior and exterior of the property in a manner that facilitates marketability.
  • Work to clear any liens or other impediments to title that would prevent conveyance.
  • Make the monthly payment stipulated in the SSA, if applicable.

The time-line

Once we have determined eligibility under the HAMP guidelines and the client retains our law firm, we will submit to the lender a complete HAMP package and the directed Request for Short Sale Approval. The Servicer must consider the borrower for HAFA within 30 days of request.

View the complete HAFA Program (Adobe PDF)

Be Sociable, Share!