HAFA, OVERVIEW OF HOME AFFORDABLE FORECLOSURE

ALTERNATIVES – SHORT SALE AND

DEED-IN-LIEU OF FORECLOSURE
(IN EFFECT AS OF APRIL 5,2010)

As you may have heard on the news, the U. S. Treasury is trying to make short sales, well,
shorter! Many homeowners and buyers have been plagued for waiting months for short sale
approvals. Realtors are at their wits end. Lenders are overloaded with requests. Waiting five
months for a short sale approval is becoming the norm. The new program that is supposed to
help is called “Home Affordable Foreclosure Alternatives Program” or “HAFA”. What Treasury
is trying to do is help streamline the short sale process by suggesting guidelines to the
participating lenders who according to HAFA Supplemental Directive must follow its investor
guidelines to create their own policy. There are many details, requirements and forms that
make up this new program.

Borrowers that meet the eligibility criteria for HAMP (Home Affordable Modification Program)
but who are not offered a Trial Period Plan, do not successfully complete a Trial Period Plan, or
default on a HAMP modification by missing at least two payments should first be considered for
other loan modification or retention programs offered by the servicer prior to being evaluated
for HAFA. The servicer must proactively notify the borrower in writing of the availability of these
options and allow the borrower 14 calendar days from the date of the notification to contact
the servicer by verbal or written communication and request consideration under HAFA. If the
borrower fails to contact the servicer within the timeframe or at any time indicates that he or
she is not interested in these options, the servicer has no further obligation to extend a HAFA
offer. When a HAFA short sale or DIL (Deed-In-Lieu Of Foreclosure) is not available, the servicer
must communicate this decision in writing to any borrower that requested consideration.

Are You Eligible?

You might be eligible for HAFA if your lender participates in the Home Affordable Modification
Program (HAMP), and your mortgage is not underwritten by Fannie Mae or Freddie Mac (these
entities will be releasing their own short sale streamline programs in the future). For Fannie
Mae or Freddie Mac loan look ups go to www.fanniemae.com/loanlookup or
www.freddiemac.com/mymortgage. All servicers participating in HAMP must also implement
HAFA in accordance with their own written policy, consistent with investor guideline, so there
may be some variations among lenders. A current list of participating servicers is available at
http://www.makinghomeaffordable.gov/contact_servicer.html. HAMP offers you the
opportunity for assistance by lowering your payments or delaying payments to keep you in your
home. You must meet the HAMP requirements to be part of HAFA program, whether or not you
choose a modification.
A loan meets the basic eligibility criteria if all of the following conditions are met:
1) You have missed payments or are about to default
2) The home is your primary residence
3) You got your primary first lien mortgage before January 1, 2009 and your current unpaid
principal balance is less than $729,750
4) Your total monthly mortgage payment is greater than 31% of your gross income

POSITIVE BENEFITS FOR HOMEOWNERS:

 If you are eligible for this program, and your lender participates, you must be given
the chance to do a short sale or deed-in-lieu prior to the lender foreclosing.
 The program says you do not have to resubmit your financial paperwork for the short
sale after you have already provided it for HAMP.
 Your lender will determine the acceptable net from your anticipated short sale prior
to you participating in the program. This should save time versus a typical short sale,
where the lender determines if a contract is acceptable after it is submitted for
consideration. The minimum proceeds will be stated in terms of actual dollar amount,
percentage of market value or percentage of your list price.
 Your lender will state what closing costs they will pay for the sale in advance. This will
save contracts where the buyer asks for too much in closing costs = no wasted
negotiating.
 Homeowners who participate in a HAFA short sale transaction are eligible for $1,500
in relocation assistance upon successful completion.
 The servicer may, but is not required to, negotiate with subordinate lien holders on
behalf of the borrower. The servicer, on behalf of the investor, will authorize the
settlement agent to allow up to $3,000 as payment(s) to subordinate mortgage lien
holder(s) in exchange for a lien release and full release of borrower liability.
 After completion, the servicer must release its first mortgage lien and the investor
must waive all rights to seek a deficiency judgment and may not require the borrower
to sign a promissory note for the deficiency. Servicer will prepare and send for
recording a lien release in full satisfaction of the mortgage.
 Servicers may not charge the homeowner any administrative processing fees in
connection with HAFA. The servicer must pay all out-of-pocket expenses, including
but not limited to notary fees, recordation fees, release fees, title costs, property
valuation fees, credit report fees, or other allowable and documented expenses….but
the servicer may add these costs to the outstanding debt in accordance with
borrower’s mortgage documents and applicable laws in the event the short sale or
DIL is not completed.
OTHER THINGS YOU NEED TO KNOW:

 You cannot remain in the home as a tenant after closing.

 You must not be related to the buyer (arms length).
 You cannot earn a real estate commission if you are a licensee and sell the home
yourself
 You may be required to make payments deemed “affordable” by HAFA until your
property is sold. This is based on a calculation of your income and expenses.
 You must maintain the property and pay association dues until it is sold.
 You must take care of other impediments to selling, for example, an IRS tax lien or
judgment which might affect your sale.
 Your senior lienholder gets a monetary incentive when your junior lienholder waives
the right to a future deficiency. This part of the program “may” inspire better terms
from your second mortgage holder. NOTE: HAFA DOES NOT STATE THIS AS A
REQUIREMENT, THOUGH, SO YOU MAY STILL HAVE A RESPONSIBILITY TO PAY YOUR
JUNIOR LIENHOLDER CASH OR A PROMISSORY NOTE IF THEY AGREE TO THE SHORT
SALE!
 If you have Mortgage Insurance (MI) on your note, the MI company must agree to
waive its right to a cash contribution from you or note or you won’t qualify for HAFA.

Prior to approving a borrower to participate in a HAFA short sale, the servicer must determine
the minimum acceptable net proceeds (minimum net) that the investor will accept from the
transaction. After signing a Short Sale Agreement (SSA), the servicer may not increase the
minimum net requirement until the initial SSA termination date is reached (not less than 120
calendar days). Subsequent changes to the minimum net when the SSA is extended must be
documented. The term of the SSA may be extended at the discretion of the servicer up to a total
term of 12 months, in accordance with the requirements of the investor. 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.
MORE PROCEDURES: When you receive a fully executed purchase agreement (offer) on your
home, you will have 3 business days, with my assistance, to get the copy of the contract,
request for approval of short sale, proof of buyer’s financial qualifications and a status
update on the negotiation of any subordinate liens to the loan servicer. If you are using the
standard HAFA program with a pre-approved net price (SSA), you should receive an approval
or rejection within 10 business days, or about 3 weeks of receipt. However, if you have not
gone through the HAMP modification program and standard SSA, then your approval time
will be lengthened. In this situation Alternative RASS Form ( Alternative Request For Approval
Of Short Sale) will be used, then the program requires 14 more days to allow you to decide if
you want a modification (well, of course at this point you probably don’t or you would have
already done so, right?), and for you to provide all the financial documentation necessary.
In accordance with investor requirements, servicers have the discretion to accept a HAFA DIL
(Deed-In-Lieu of Foreclosure), which requires a full release of the debt and waiver of all claims
against the borrower. This is another alternative if a short sale is not successful. A “Deed-In-Lieu
of Foreclosure” is specifically designed to help borrowers who are unable to afford their first
mortgage and want to avoid foreclosure. With a DIL, you voluntarily transfer ownership of your
home and all real property secured by your mortgage loan (Property) to your servicer to satisfy
the total amount due on the first mortgage. This alternative will prevent you from going
through a foreclosure sale and it will release you from all responsibility to repay the
mortgage debt. Additionally, you will still be eligible to receive $3,000 to help with your
moving expenses. The borrower must agree to vacate the property by a date certain (which in
no event shall be less than 30 calendar days unless the borrower voluntarily agrees to an earlier
date).

ATTENTION, PLEASE BE AWARE!

1) A borrower may not participate in a HAMP Trial Period Plan and agree to a HAFA SSA
simultaneously!
2) Unless a borrower or co-borrower is deceased or a borrower and a co-borrower are
divorced, all parties who signed the original loan documents or their duly authorized
representatives must execute the HAFA documents!
3) The servicer should continue to report a “full file” status to the major credit bureau
repositories for each loan under the HAFA program in accordance with the Fair Credit
Reporting Act and the Consumer Data Industry Association’s (“CDIA’s”)!
4) The difference between the remaining amount of principal you owe and the amount
that your servicer receives from the sale must be reported to the Internal Revenue
Service (IRS) on Form 1099C, as debt forgiveness. In some cases, debt forgiveness
could be taxed as income. The amount your servicer will pay you for moving expenses
may also be reported as income. Please contact the IRS or your tax preparer to
determine if you may have any tax liability.
5) Your servicer may and probably will follow standard industry practice and report to
the major credit reporting agencies that your mortgage was settled for less than the
full payment. To learn more about the potential impact of a short sale on your credit,
you may want to go to
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre24.shtm.

Both of these foreclosure alternatives reduce the need for potentially lengthy and expensive
foreclosure proceedings for the servicers (your lenders). The options help preserve the condition
and value of the property by minimizing the time a property is vacant and subject to vandalism
and deterioration. HAFA states that a participating lender must follow its investor guidelines to
create their own policy, with criteria for your eligibility to include: how cooperative and
“motivated” you are, the amount of the loss on your mortgage, and local market conditions,
among other things. In addition HAFA states that it is up to the servicer and investor to decide if
allowing you to be in this special short sale program is in their best interest.
When Does The Program End?
Short Sale Agreements must be executed and returned to the servicer no later than December
31, 2012.

HAMP/HAFA Resources
www.MakingHomeAffordable.gov
www.lasvegasrealtor.com/reo
www.realtor.org/shortsales

There is a lot to this new HAFA program, which officially started on April 5, 2010. How many
people it will actually help is questionable. If it does work, it will speed up your short sale. If it
does not, there are still many other options available to you.

For additional questions please call me at (702)525-9757 or email me at

[email protected]