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HAFA FAQ
New Short Sale Rules
Effective 4-01-10
1. What is HAFA?
Initially announced on May 14, 2009, with guidance and standard
forms issued on November 30, 2009,
the program will help owners (referred to below as borrowers)
who are unable to retain their home
under the Home Affordable Modification Program (HAMP).
A borrower (the current owner) may be able to avoid a
foreclosure by completing a short sale or a deedin-lieu of foreclosure (DIL) under HAFA.
The guidance and forms released on November 30 do not apply to
loans owned or guaranteed by Fannie
Mae or Freddie Mac. Those enterprises will issue their own HAFA
guidance and forms.
2. Who is eligible?
The borrower must meet the basic eligibility criteria for
HAMP:
-
Principal residence.
-
First lien originated before
2009.
-
Mortgage delinquent or default is reasonably
foreseeable.
-
Unpaid principal balance no more than $729,750
(higher limits for 2 to 4 unit dwellings).
-
Borrower’s total monthly payment exceeds 31% of
gross income.
3. How is the program being
implemented?
Supplemental Directive 09-09 (November 30, 2009) gives
servicers guidance for carrying out the
program. All servicers participating in HAMP must also
implement HAFA in accordance with their own
written policy, consistent with investor guidelines. The policy
may include such factors as the severity of
the loss involved, local market conditions, the timing of
pending foreclosure actions, and borrower
motivation and cooperation.
Short Sale Agreement (SSA). The servicer will send this to the
borrower after determining the borrower
is interested in a short sale and the property qualifies. It
informs the borrower how the program works
and the conditions that apply.
Request for Approval of Short Sale (RASS). After the borrower
contracts to sell the property, the
borrower submits a RASS to the servicer within 3 business days
for approval.
Alternative RASS. If the borrower already has an executed sales
contract and asks the servicer to
approve it before an SSA is executed, the Alternative RASS is
used instead. The Servicer must still
consider the borrower for a loan
modification.
4. How will HAFA improve the short sales
process?
HAFA:
Complements HAMP by providing a viable alternative for
borrowers (the current homeowners) who
are HAMP eligible but nevertheless unable to keep their
home.
Uses borrower financial and hardship information already
collected in connection with
consideration of a loan modification under HAMP.
Allows borrowers to receive pre-approved short sales terms
before listing the property (including
the minimum acceptable net proceeds).
Prohibits the servicers from requiring a reduction in the real
estate commission agreed upon in the
listing agreement (up to 6 percent).
Requires borrowers to be fully released from future liability
for the first mortgage debt (no cash
contribution, promissory note, or deficiency judgment is
allowed).
Uses standard processes, documents, and
timeframes/deadlines.
Provides financial incentives: $1,500 for borrower relocation
assistance; $1,000 for servicers to
cover administrative and processing costs; and up to $1,000
match for investors for allowing a total
of up to $3,000 in short sale proceeds to be distributed to
subordinate lien holders (on a one-forthree
matching basis; up to 3% of the unpaid principal balance of
each subordinate loan).
5. What are the timelines for HAFA?
Based on a servicer’s written policy, the servicer must
consider every potentially eligible borrower for
HAFA.
If a servicer has not already discussed a short sale or DIL
with the borrower, it must notify the borrower
in writing of these options and give the borrower 14 calendar
day to respond, orally or in writing. If the
borrower does not respond, that ends the servicer’s duty to
give a HAFA offer.
Servicers must consider HAMP-eligible borrowers for HAFA within
30 days after the borrower does at
least one of the
following:
o
Does not qualify for a HAMP trial period
plan.
o
Does not successfully complete a HAMP trial period
plan.
o
Is delinquent on a HAMP modification (misses at least 2 consecutive
payments).
o
Requests a short sale or DIL.
The borrower has 14 calendar days from the date of the Short
Sale Agreement to sign and return it to
the servicer.
The Short Sale Agreement must give the borrower an initial
period of 120 days to sell the house
(extensions permitted up to a total of 12
months).
Within 3 business days of receiving an executed purchase offer,
the borrower (or agent) must submit a
completed RASS to the servicer, including (i) a copy of the
sale contract and all addenda; (ii) buyer
documentation of funds or pre-approval/commitment letter from a
lender; and (iii) all information on
the status of subordinate liens and/or negotiations with
subordinate lien holders.
Within 10 business days after the servicer receives the RASS
and all required attachments, the servicer
must approve or deny the request and advise the
borrower.
The servicer may require the closing to take place within a
reasonable period after it approves the RASS,
but not sooner than 45 days from the date of the sales contract
unless the borrower agrees.
The servicer must release its first mortgage lien within 10
business days (or earlier if required by state or
local law) after receipt of sales proceed from a short sale or
delivery of the deed in the case of a DIL.
Investor must waive rights to seek deficiency judgment and may
not require a promissory note for any
deficiency.
6. What are the HAFA rules re real estate
commissions?
The guidance states that a servicer may not require a reduction
in the real estate commission below the
amount stated in the Short Sale
Agreement.
The SSA states that the servicer will pay the commission as
stated in the listing agreement, up to 6%.
If the servicer has retained a vendor to assist the listing
broker, the vendor must be paid a specified
amount from the commission.
Neither buyers not sellers may earn a commission in connection
with the short sale, even if they are
licensed real estate brokers or agents. They may not have any
side deals to receive commission
indirectly.
7. What are the required clauses for the listing
agreement?
Cancellation clause-seller may cancel without notice and
without paying commission if property is
conveyed to mortgage insurer or mortgage
holder.
Contingency clause-sale is subject to written agreement of all
sales terms by the mortgage holder and,
if applicable, mortgage insurer.
8. How much are the incentive
payments?
Borrower Relocation Incentive--$1,500, paid to the borrower at
closing.
Servicer Incentive--$1,000 for administrative and processing
costs for a short sale or DIL completed
under HAFA. Investors may provide additional
incentives.
Investor Reimbursement for Subordinate Lien Releases-up to
$1,000 for allowing up to $3,000 in short
sale proceeds to be paid to subordinate lien holders.
Subordinate lien holders that receive HAFA
incentive must agree not to pursue deficiency
judgments.
9. Do servicers have to treat similarly situated borrowers the
same?
Yes, but not all borrowers will qualify for a short sale or
DIL.
Participating servicers must have a written policy, consistent
with investor guidelines, that describes the
basis for deciding whether to go ahead with a short sale in
individual cases.
The policy may include such factors as the severity of the loss
involved, local market conditions, the
timing of pending foreclosure actions, and borrower motivation
and cooperation.
10. What are the steps for evaluating a loan to see if it is a
candidate for HAFA?
-
Borrower solicitation and
response.
-
Assess expected recovery through foreclosure and
disposition compared to a HAFA short sale or DIF.
-
Use of borrower financial information from HAMP.
(May require updates or documentation.)
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Property valuation.
-
Review of title.
-
Borrower notice if short sale or DIL not available
(to borrowers that have expressed interest in HAFA).
11. Can the servicer complete a foreclosure during the HAFA
process?
No. A servicer may initiate foreclosure, but may not complete a
foreclosure sale:
-
While determining borrower’s eligibility and
qualification for HAMP or HAFA.
-
While awaiting the return of the Short Sale
Agreement by the 14 day deadline.
-
During the term of a fully executed Short Sale
Agreement (while the borrower seeks to sell).
-
Pending the transfer of ownership based on an
approved sales contract per the RASS or Alternative
-
RASS.
-
Pending transfer of ownership via a DIL by the date
specified in the SSA or DIL Agreement.
12. What about DIL?
Subject to investor requirements, servicers may accept a
deed-in-lieu of foreclosure under HAFA, which
requires a full release from debt and waiver of all claims
against the borrower.
The borrower must vacate the property by a specified date,
leave the property in broom clean
condition, and deliver clear, marketable
title.
Same incentives available.
13. What else should I know?
The deal must be “arms length.” Borrowers can’t list the
property or sell it to a relative or anyone else
with whom they have a close personal or business
relationship.
The amount of debt forgiven might be treated as income for tax
purposes. Under a law expiring at the
end of 2012, however, the tax may not apply. Forgiven debt will
not be taxed if the amount of forgiven
debt does not exceed the debt that was used to acquire,
construct, or rehabilitate a principal residence.
Check with a tax advisor.
The servicer will report to the credit reporting agencies that
the mortgage was settled for less than full
payment. There will be a negative effect on credit
scores.
Buyers may not reconvey the property within 90 days after
closing.
14. When does the program end?
Short Sale Agreements must be executed and returned to the
servicer no later than 12/31/2012.
15. Where can I help if I need to do a Short Sale?
Go to www.utahshortsalesite.com/ for personal
assistance, questions and answers.
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