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St Louis Real Estate Search

Help for homeowners facing foreclosure or are underwater

Dennis Norman

Back in early December I did a post about a new program that was announced in November, the Home Affordable Foreclosures Alternative (HAFA) Program which is scheduled to go into effect April 5, 2010. There was recently supplemental documentation published as well as FAQ’s about the program and I have to admit, it seems to me the government is getting it right with this program.

THE HAFA PROGRAM:

The Home Affordable Foreclosure Alternatives Program provides financial incentives to loan servicers as well as borrowers who do a short-sale or a deed-in-lieu to avoid foreclosure on an eligible loan under HAMP. Both of these foreclosure alternatives help the lender out by avoiding the potentially lengthy and expensive foreclosure proceedings and also by protecting the property by minimizing the time it is vacant and subject to vandalism and deterioration. These options help out the borrower by avoiding the foreclosure process and the uncertainty that comes with it and allows the borrower to negotiate when they will give up possession of their home as well as, under the HAFA program be released from any further liability from the loan including short-fall and deficiencies.

How will the short sale process work under HAFA?

  • You will need to enter into a short-sale/deed in lieu agreement iwth your lender.
  • Before listing your home for sale your lender will approve a list price on your home or give you the amount of sale proceeds that are acceptable to them under a short sale. The lender will also let you know what costs may be deducted from the sale proceeds, such as commission and closing costs.
  • After you list your home and receive an offer from a buyer, you will submit the offer, along with a “Request to Approve a Short Sale form, to your lender. In addition, you will need to submit proof that the buyer has funds to purchase your home, such as a letter that the buyer is approved for a mortgage. After you provide the necessary documentation to your lender, your lender has 10 business days to approve the sale.
  • At the closing of the sale the lender is to release you from ALL responsiblities for repaying your mortgage. Plus, you will receive $3,000 from the proceeds to help pay some of your moving expenses.

Your responsibilities under the HAFA short sale.

  • Keep your house and your property in good condition and repair and cooperate with your broker to show it to potential buyers.
  • You may be required to continue to make full or partial mortgage payments (this will be determined by your lender)
  • You must be able to provide the buyer of your home with clear title. To start, determine if you have other loans, judgments or liens secured by your home, such as a home-equity line of credit or a second mortgage. If there are such liens, you will need to either pay these loans off in full or negotiate with the lien holders to release them before the closing date. Under this program, you must make sure other lien holders will agree not to pursue other legal action related to the pay off of their lien, such as a deficiency judgment. You can get help from your broker to negotiate with the other lien holders.
  • The program allows up to 6% of the unpaid principal balance of each loan (not to exceed an aggregate of $6,000 for all the loans in total) to be paid from the sale proceeds to help get a lien release.
  • At several stages of the short sale process, such as after an offer is received, you will need to complete some paperwork. You are responsible for returning all documents within the time allowed in your short sale agreement with your lender.

Additional Info on Short-Sales.

  • You cannot list the property with, or sell it to anyone that you are related to or have a close personal or business relationship with, it must be an “arms length transaction”.
  • If you have a real estate license, you cannot earn a commission by listing your owner property. Nor can you have an agreement to receive a portion of the commission.
  • The buyer of your home must agree not to sell the home within 90 calendar days of the date it is sold by you.
  • You must not have any expectation that you will be able to buy or rent (it’s your lenders discretion on the rent) your house back after closing.

HAFA Short-Sale FAQ’s

  • How much real estate commission can be paid out of the sale proceeds? Six Percent is the maximum commission and the seller, nor buyer, can receive any portion of the commission.
  • Can a lender that has a second mortgage or other junior lien request additional payments from the seller or real estate agent in addition to what they are allowed to receive from sale proceeds? No.
  • What if the property was a principal residence but is vacant at the time the lender evaluates the deal for a Short-Sale or Deed-In-Lieu? The property can be vacant for up to 90 days prior to the date of the Short Sale Agreement and still be eligible but only if the borrower can provide documentation showing that the borrower was required to relocate at least 100 miles from the mortgaged property to accept new employment or was transferred by the current employer, and there is no evidence indicating the purchaser has purchased a new home 90 days prior to the agreement.

Deed in lieu option.

If by the termination date of your short-sale agreement with your lender you have not been able to sell your home, but you have complied with all of your responsibilities under the agreement, then you will be given the opportunity to convey (transfer) ownership of your home to the lender. While this will not allow you to keep your home it will prevent you from going through a foreclosure and 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.

Additionally, if you are unable to afford your first mortgage (and therefore not able to do a short sale) you will be considered for the deed-in-lieu option.

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