HAFA stands for Home Affordable Foreclosure Alternatives, which is a program for homeowners who are experiencing difficulties. It helps to sell the home and avoid foreclosure because it provides motivation for lenders and borrowers to collaborate. Also, it should facilitate marketing and selling properties.
New guidelines for HAFA were released in March of this year and went into effect April 5th. To be eligible for a HAFA short sale the property must be the borrower’s primary residence; the loan must be a first trust deed dated before the year 2009; the loan should be delinquent or default may be approaching; the unpaid principal balance should be less than $729,750 for a single-family home (there are higher limits for multi-unit homes); the borrower has to be eligible and unable to do a loan modification under HAMP (Home Affordable Modification Program).
So, what’s the financial motivation for a seller to use HAFA? The borrower will receive $3,000 for relocation expenses. The servicers will receive $1,500 for each successful short sale. Also, $1 will be reimbursed to the investor for every $3 which was paid to cancel junior liens; however, this is only paid up to $2,000 and cannot exceed 6% of the unpaid balance of the loan.
The process is fairly simple for a HAFA short sale. First the lender assesses the borrower for a loan modification under HAMP, and would later evaluate that the borrower is unable to complete a HAMP modification for short sale. After the assessment, the lender will issue a Short Sale Agreement (HAFA SSA).
A SSA includes a list price or net proceeds which are acceptable to the lender. Also, the lender will agree to release the borrower from loan repayment liability, and they will agree to stop a foreclosure if the borrower cooperates with the SSA. In addition, it will state the amount of suitable closing cost and up to 6% real estate commission. The sale must be an “arm’s length” transaction. The buyer will also be notified that they may not sell the property within 90 days of closing.
Once the agreement is in place, the borrower may list the property with a licensed real estate agent. With a licensed real estate agent the borrower can market and sell the property. When an offer is made for sale, the borrower will submit a Request for Approval of Short Sale (RASS) from the lender. The lender will approve RASS within 10 business days. Then, the sale closes escrow. This process can take up to 10 months.
Although HAFA has many benefits, a HAFA short sale may have tax, credit, financial, legal and other consequences. Homeowners should always get advice from a qualified professional.
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