What is a HAFA Short Sale?

HAFA stands for a federal government program named “the Home Affordable Foreclosure Alternatives Program” which was created to compliment another government program, the “Making Home Affordable Program.” Both are under the supervision of the U.S. Treasury Department as part of the TARP (Troubled Asset Relief Program).

After discovering that the Making Home Affordable Program was not helping as originally anticipated, the feds introduced HAFA.  As we all know by now the Making Home Affordable Program found some lenders not approving these loan modifications.  In other instances, the homeowner/borrower did not approve of them (the terms were not acceptable), and sometimes those who did agree to them later found that they were unable to stay the new course, which left them with a looming foreclosure.

A HAFA Short Sale Helps Those Where Loan Modification Is Not the Option: Alternatives to Foreclosure

With HAFA, the federal government is giving borrowers a way to circumvent that inevitable foreclosure after the modification idea has not worked for them.  How?  HAFA  gives those borrowers a viable alternative to foreclosure.  Here, the issue of being able to keep the home is not viable, and HAFA steps in to help the homeowner avoid a foreclosure on their record through either (1) a short sale or (2) a deed in lieu of foreclosure.

What is a short sale?

As defined by HAFA, a short sale is where “….the servicer allows the homeowner 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 first mortgage.”  Here, the homeowner finds someone to buy the home with the lender’s approval, thereby avoiding foreclosure.

What is a deed in lieu of foreclosure?

HAFA defines a deed in lieu of foreclosure as the voluntary transfer by the borrower of “… ownership of the property to the servicer— provided the title is free and clear of mortgages, liens, and encumbrances.”  Here, the homeowner signs his or her interest in the property over to the lender – transferring legal title to the bank just as a foreclosure would do, but without the negative ramifications of a foreclosure process.  Often this will not be accepted by a lender without first pursuing a short sale unless there are significant blocks to selling the home .  Discuss this option with us to find out more.

What about deficiencies? HAFA gives the borrower a clean slate.

In the case of either a short sale or a deed-in-lieu, the lender (servicer) may have a remaining balance on the books, once the remaining amount due on the home loan is compared to the property value of the home itself.  The negative number, “the deficiency,” can be the subject of a collection lawsuit by the lender in most states.  However,  HAFA provides further assistance to the borrower/homeowner by removing this vulnerability as the lender must agree to write off that loan balance, as well as all other obligations tied to the first lien mortgage.  Under HAFA, once the lender accepts the short sale or the deed in lieu of foreclosure, the loan balance is considered cleared.

What about moving costs?

Once HAFA’s plan to salvage the failed modification situation through a short sale or deed-in-lieu has been executed, the final step remains of getting the homeowner/borrower into a new home – now that their home has been transferred to a buyer or to the bank.  To that end, HAFA will pay up to $3000 per homeowner in relocation costs.

Can HAFA help you?  It depends.

The benefits of HAFA, as well as its sister Making Home Affordable Program, have received criticism by many in the industry for not being as helpful as expected; the Washington Post pointed out that there appears to be many lenders unwilling to negotiate modifications, for example.  In the Treasury Department’s own report to Congress, which you can read here, the following was reported:

Statistics show that by 12/31/2010, there were 521,630 active permanent modifications and 152,289 active trial modifications, while 1,025,907 homeowners were rejected for HAMP modifications by the eight largest banks/servicers, and another 572,655 trial modifications failed.

Accordingly, the Treasury Department responded with changes that became effective February 1, 2011 to make these programs more helpful to American homeowners, found in its December 2010 version 3.0 of the Making Home Affordable Program Handbook for Servicers of Non-GSE Mortgages.

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