HAFA Short Sale Potential Gotcha's! What to Look Out For Plus Links to HAFA Guidelines and Participating Loan Servicers

By
Real Estate Agent with Davis-Resnick Group, LLC

 

For starters, if the borrower's servicer offers them participation in a HAFA short sale, they must respond within 14 days or lose the opportunity to participate.

Without getting into all the technical details of HAFA, there are some things I think all borrowers and agents should be aware of to help in determining whether a HAFA short sale is advantageous.   I have included a link to the actual HAFA Supplemental Directive 09-09 Revised with this article so you can read the details yourself. 

HAFA is the government's latest program to try to get short sales moving.  It just went into effect as of April 5th, with major revisions occurring as recently as March 26th.  Lenders, servicers, borrowers, investors and real estate agents are all trying to get their arms around HAFA to see what it really means.  As agents, we are all wondering to what extent the servicers and investors will actually participate and comply with HAFA.  Many of the big Lenders and Servicers have signed up for the program.   ( Current List of Loan Servicers Participating in HAFA) :

 Among HAFA's features are:

Home must be borrower's principal residence.  (There is a 90 day exception for documentable job relocation)

Full release of any further financial liability to the borrower for the first lien.  The investor that owns the first mortgage must agree to participation in the HAFA short sale.

Full release of any further financial liability to the borrower for the second lien should they accept the HAFA terms

The second lien holder will also have to agree to participation in the HAFA program.  If the second lien holder will not release the lien the sale will not qualify for HAFA, the borrower may still qualify for a "traditional" short sale, however. 

It is not clear that second lien holders are going to participate in HAFA sales since it requires a complete release of lien with a capped payment to them of $6,000.  In our experience, many second lien holders want or at least will attempt to demand more in the form of cash, continuation of payment or modification of the loan to release the lien to allow a short sale to take place.

The lender will require that the borrower pay them up to 31% of their gross monthly income while the property is marketed and up until closing

If the second lien holder refuses to cooperate, the borrower could wind up having paid additional money to their lender that they will not be able to recover. 

The Loan Servicer is required to provide the owner and agents with a price or net for the first lien which is acceptable to the investor and which the agent will use to list the property.

The Loan Servicer is required to approve or decline an offer within 10 business days

There are some other uncertainties which have come up already in our business.

It is not clear how divorced couples would be treated from anything I've read; whether or not a divorced spouse not living in the home would or would not be required to make payments as well or whether the payments to the Servicer would be based on the divorced couples combined incomes.

The seller and their agents are responsible for obtaining the release from the second lien.  It is not clear whether or not Servicers such as BOA and Wells Fargo will assist in getting a release from themselves (in a second mortgage situation) or whether or not they will assist in getting a release from a completely unrelated Servicer/Investor.  They are not required to assist with getting releases from subordinated lien holders. Traditionally, this has been the responsibility of the Listing Agent and is one of the reasons short sales can be so difficult: getting that second to agree to terms to allow the short sale to go through.

There are of course many more questions to be asked and answered with this program.  These are just a few of the considerations that immediately come up when contemplating how home owners and agents should approach this new program.

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Rainmaker
143,076
Mary Lockman
Windermere Real Estate Methow Valley - Winthrop, WA
Methow Valley Real Estate

Well at least the government knows there is a big problem with short sales.  I am in an area where there are less than 1% short sales, but if they come up for a buyer or a seller I best be in the know about all this complicated real estate. 

Apr 08, 2010 05:29 PM #1
Rainer
23,872
Michael Davis
Davis-Resnick Group, LLC - Annapolis, MD
Anne Arundel Real Estate & Short Sales mike@davisr

Your right!  For the longest time I thought the government was completely oblivious.  They make up about 15% of the market here and seem to be increasing rapidly

Apr 08, 2010 05:33 PM #2
Anonymous
Amber Grice

I'm currently working on getting one of my sellers approved for the HAFA short sale and all looks peachy!  1st mortgage is with BOA and the Second with Chase.  Both are participating in HAFA.  My impression and all other parties that I speak to about this, say that Chase will be required to take the low pay off required by the HAFA short sale guideline.  Chase called me on Friday and said they participate in HAFA but this 2nd mortgage does not qualify for HAFA?!  I asked them to send me this in writing and they said they don't have that in writing.  Then they transferred me to a supervisor because I was still asking about the HAFA 2nd mortgage pay off and they kept telling me that the HAFA pay off is not acceptable to them!?  The Supervisor because very angry with me (even though I was calm and cool the entire time) when I kept asking him about 2nd mortgage HAFA participation and he demanded I Google it!? Buddy the supervisor proceed to tell me that with the HAFA Short Sale my client will be force to foreclose because they will not accept their 2nd HAFA amount payoff!?

Are they not required to take the 2nd mortgage payoff even through they participate in HAFA!? Or are they trying to just get more money out of the sale and scare us out the HAFA short sale. Or becuase they do participate in HAFA arent they required to take the smaller pay off!?

Jun 13, 2010 11:36 AM #3
Anonymous
Kevin

HA!  10 days?  It took Wells Fargo almost 8 weeks to deny.

Dec 12, 2010 02:15 PM #4
Anonymous
Mike Davis

Short sales and foreclosures are now about 20% of our market.  Take a look at the Special Inspector General's for the Troubled Asset Relief Program's (SIGTARP) most recent quarterly report for some dismal information.  As of the end of September exactly 342 home owners had obtained either a HAFA approved short sale or deed in lieu of foreclosure.  They don't say how many of each but it hardly matters with numbers as low as this 

SIGTARP goes on to highlight abuses by the loan servicer's who repeatedly delay approvals of conversion of trial loan modifications past the allowed 3 month period.  SIGTARP also point out the fact that many loan servicers (and you can substitute the word "banks" for servicers here) actually make more money foreclosing than approving modifications or short sales.  

Most folks don't understand that the "banks" acting as servicers, don't own the loans they are servicing.  So as servicers, under many circumstances, they make more money foreclosing than they do providing loan mods or approving short sales.  Don't hold your breath waiting for and of them to admit it, though. 

Dec 12, 2010 02:51 PM #5
Rainer
122,601
Mike Linkenauger
Jacksonville, FL
Short Sale Specialist Network

HAFA has been a big bummer, but we expected alot of this.  Hopefully the new guidelines will help some.  As one of the new HAFA program guidelines that went into effect Feb. 1st, 2011, the 31% debt to income ratio does NOT need to be proven by the borrower.  In other words, it is like a "stated income short sale" to some degree!  Pretty good news for the program.  We have a great discussion and info group for the HAFA short sale program, and we are releasing an updated HAFA guide next week as well - www.theshortsaleguide.com/group/hafaprogram

Mar 03, 2011 01:04 AM #6
Rainmaker
40,063
Anna Chroscicki
Re/Max Masterpiece Realty - Port St Lucie, FL
Realtor - St. Lucie County affordable Real Estate

This question is for Amber Grice. Were you ever able to work out this Chase issue? I am going trough the same situation ( HAFA- second is CHASE). Their story to me is that they participate in HAFA and they want $6000, because that is their rule. Unpaid balance is around $53,000 and first is giving Chase 6% ( around $3,500). I actually sent to Chase form I found on government web site that clearly states that second is not to receive no more than 6% of unpaid balance ( capped at $6000. So, please tell me how it worked out. Also, if somebody else has any ideas, please share.

Sep 15, 2011 11:23 PM #7
Rainer
23,872
Michael Davis
Davis-Resnick Group, LLC - Annapolis, MD
Anne Arundel Real Estate & Short Sales mike@davisr
Anna. I need to brush up on my HAFA regs but I believe the problem is the same. The bank gets good press saying they participate but if only servicing the loan they aren't the investor so it doesn't mean anything because the particular investor is not required to participate. This is one of the problems with HAFA especially.with second liens. ordinarily in this circumstance the 2nd would as for some form of note Generally 2nds will be satisfied and give full release for 10 to15pct note value in cash if non HAFA participant which is what it sounds like they are demanding
Sep 16, 2011 01:11 AM #8
Rainmaker
40,063
Anna Chroscicki
Re/Max Masterpiece Realty - Port St Lucie, FL
Realtor - St. Lucie County affordable Real Estate

No....I just spoke with Chase rep and he told me that they are owner of this loan- not just servicer. Nothing he will give me in writting. I even asked him to Decline short sale in writing and he said no. What do you think of that? 

Sep 16, 2011 12:50 PM #9
Anonymous
Anonymous

you guys all whine because you all want money. Nothing more, nothing less. you are agents and you don't give two sharts about anything other than your commission.

Oct 31, 2011 02:54 PM #10
Rainmaker
40,063
Anna Chroscicki
Re/Max Masterpiece Realty - Port St Lucie, FL
Realtor - St. Lucie County affordable Real Estate

I feel exactly the same way.......I think that comment about how we only care about commission is very unfair to agents that work their "a......." off to get short sales negotiated. If we were about only commissions, we would just hand out our files to attorneys to handle negotiations and wait for approval and closings. But- no.....We call, wait on hold for hours, we do not take no for an answer, at the end  we let banks cut our commissionor........we do not get paid at all. But- yes, I like to get paid. I wonder how would you feel if you would work for months on project at work, stress about it, fight, plead, etc and at the end you boss would just tell you that you will not get paid for this time? Well, we don't ( get paid)..........all the time........and we take it.......and then ( when short sale does not work out) we stand by our sellers and we do not make them feel like we waisted our time. We are just trying to help and guide as to what to do now.        

Oct 31, 2011 10:10 PM #11
Anonymous
Michael Davis

Thanks for your comment Anna.  As you no doubt know, attorney's who wouldn't have touched short sales a year and a half ago are suddenly experts and as a result agents who have scant knowledge blithely take on short sale listings and just throw them over the fence to be "professionally negotiated"

We've been representing short sale sellers since 2007 and as you know you can not be successful with these as an agent without a real desire to help people and not co-incidentally, take on the banks.  

Oct 31, 2011 10:20 PM #12
Rainmaker
17,838
Tom Braunagel
Keller Williams Realty - Trumbull, CT

HI Davis-

Can a client request HAFA funds for a short sale if their second is short but not their first?

Thanks in advance....Tom Braunagel

Jan 23, 2012 06:09 PM #13
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Rainer
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Michael Davis

Anne Arundel Real Estate & Short Sales mike@davisr
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