The Treasury Department has finally issued its official guidelines for short sales, and the good folks at NAR have put together an issue brief about it.
The new Home Affordable Foreclosure Alternatives Program (HAFA) — which is part of the Home Affordable Modification Program (HAMP) — provides incentives to homeowners who are looking to sell but won’t make enough to cover their existing loans if that existing loan is eligible for modification under HAMP (but the homeowner still needs to sell).
Note that HAFA doesn’t apply to loans guaranteed by Fannie Mae or Freddie Mac, which, the feds say, will issue their own versions of HAFA in coming weeks.
The idea is to streamline short sales (or deeds-in-lieu) so the homeowner can avoid foreclosure.
Here come the bullets. 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.
- 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 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-for-three matching basis).
The program takes effect on April 5, 2010, “but servicers may implement it before then if they meet certain requirements.” It sunsets on December 31, 2012.
(See also: VAR’s Short Sales Resource Center at www.VARealtor.com/ShortSales. You’ll find VAR’s standard forms for lender mediated transactions, links to information about certifications for distressed property sales, and information to pass along to your clients about avoiding foreclosure)