In 2009, the Treasury Department introduced the HAFA program to provide a viable option for homeowners who are unable to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFA program took effect on April 5, 2010 and sunsets on December 31, 2012.
HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are also required to comply with HAFA.
HAFA Provisions
- 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.
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
- 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 the following financial incentives:
- $3,000 for borrower relocation assistance;
- $1,500 for servicers to cover administrative and processing costs;
- Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
- Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.
But to be technical, here’s a more official definition:
- A homeowner is ‘short’ when the amount owed on his/her property is higher than current market value.
- A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then ‘sold short’ of the total value of the mortgage.
For homeowners to qualify for a short sale, they must fall into all of the following circumstances:
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals.
Foreclosure Avoidance Options
Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. The options available to residents for foreclosure are many, including but not limited to short sales. Following is a brief explanation of these solutions:
Reinstatement
A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender’s approval and will ‘reinstate’ a mortgage up to the day before the final foreclosure sale.
Forbearance or Repayment Plan
A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.
Mortgage Modification
A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.
Rent the Property
A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, can convert their property to a rental and use the rental income to pay the mortgage.
Deed in Lieu of Foreclosure
Also known as a ‘friendly foreclosure,’ a deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.
Bankruptcy
Many have considered and marketed bankruptcy as a ‘foreclosure solution,’ but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.
Refinance
If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.
Servicemembers Civil Relief Act (military personnel only)
If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers in relation to qualifying for this relief.
Sell the Property
Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.
Short Sale
, Short Selling in Ventura County and Los Angeles
If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.
This represents only a summary of some of the solutions available to homeowners facing foreclosure. We work in your your area and can do an evaluation of your individual situation, property value, and possible options.
Doing a Short Sale in Ventura County, Thousand Oaks, Westlake Village, Camarillo, Ventura, Newbury Park, Agoura Hills, Oak Park, Simi Valley, Moorpark, Oxnard or anywhere in the San Fernando Valley is the same as doing it anywhere in California. When you short sale your house in Ventura County or the San Fernando Valley you can expect Tristan and Associates to help your short sale go as smooth as possible. Tristan and Associates have done Luxury Short Sales and Residential. Short Sales in Thousand Oaks, Short Sales in Westlake Village, Short Sales in Newbury Park, Short Sales in Dos Vientos, Short Sales in North Ranch, Short Sales in Ventura, Short Sales in Camarillo, Short Sales in Oxnard, Short Sales in Port Hueneme, Short Sales in Agoura Hills, Short Sales in Oak Park, Short Sale in Simi Valley, Short Sales in Moorpark, and Short Sales in the San Fernando Valley are all places that have had short sales done successfully.
Understanding your options now could mean all the difference in the world.
We are here to help, call Tristan and Associates for information or for help at 805-559-3364.
Tristan and Associates 