New Short Sale Rules
July 11, 2010 
4 Comments
The Government’s new Home Affordable Foreclosure Alternatives Program (HAFA) that recently went into effect is helping streamline the short sale process. The biggest problem with short sales is that they were taking at least 3-6 months or longer to get lenders to approve them. Now that most lenders have jumped on board with the idea of short sales as alternative to foreclosure, the HAFA program will help facilitate the process and make it much more unified. Major lenders including Bank of America, Wachovia, Wells Fargo, GMAC Financial Services, JP Morgan Chase and Citi Bank are all participating in HAMP, which is requirement for the HAFA Program. Bank of America, GMAC and JP Morgan have also agreed to support HAFA. The program is for mortgages that are guaranteed by Fannie Mae and Freddie Mac. Here is what you need to know:
- The seller must present the offer to their lender within three days after receipt.
- The lender has 10 business days to approve or deny the offer.
- Closing must take place no earlier than 45 days from acceptance of the offer by all parties, unless the seller and buyer both agree to a quicker closing.
- The new buyer cannot resell the property for 90 days.
- Buyers cannot be related to the seller and cannot be anyone that the seller has a close personal or business relationship with either.
- Borrowers receive $3,000 for relocation, and lenders receive $1,000 for administration fees and costs as incentives for participating in the program and closing the transaction.
- Borrowers must be fully released from any mortgage obligations to lenders.
Eligibility Requirements
- Property must be the seller’s principal residence.
- Mortgage must have originated on or before January 1, 2009.
- Mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.
- Borrower is delinquent or about to default.
- Seller has a financial hardship.
- Borrower’s total monthly mortgage payment exceeds 31% of borrower’s gross income.
- Unpaid principal balance does not exceed $729,750.
- Borrower must have been turned down for a mortgage modification under the HAMP program.
This is great news. Now you will know within a couple weeks or so after making your offer is it is going to get accepted, or you can move on to another property. The biggest frustration for everyone has been the long waiting period. The HAFA program eliminates the uncertainty for all parties. It’s definitely worth buying a short sale that meets the HAFA eligibility requirements because you know you are getting a property at a substantial discount, and you will be able to close fairly quickly. I don’t know about you, but I certainly welcome this new program.
Susan: Great article, very informative. I am opting in for your sydication information. I am a seasoned investor but we are in great need of private money – more deals than money to fund them! We have raised onber $2M in the past but need to ramp up again. I will give you a great testimonial if your information helps. take care!
Sean O’Carroll
Unfortunately for me this is actually a burden. I have been trying to purchase a short sale since January on a mortgage held by BofA. They were about to make a decision in April when they launched their equator system and the entire process started over. Now we finally got to the point where a negotiator was assigned and ready to deal when the bank told the seller he has to apply for HAFA. Now we wait again and who knows for how long while he tries for HAFA approval. Any idea how long it takes to get approval for HAFA?
Susan,
the problem is that the homeowner must still make payments during the short sale. Also the valuation is done as a desktop review(drive by)so from what I am hearing the bpo’s are all coming in high. Honestly not even sure why banks do exterior’s as they are a joke.
Almost all of the people I work with have no money to continue making the payments. So realistically the short sale will still take 2-3 months and that 3k the seller gets is a wash or a loss with their payments being made.
Jeff Watson, Topshortsale lawyer(my friend as well) says it is an absolute joke. I concur with him. We send ALL of our short sales in with a letter stating, “This is a non-haffa short sale.”
All in all it might be a bit quicker but the results will not be their for the majority of the investor buyers.
I just closed a traditional short sale in 9 weeks, i am seeing that the banks are moving faster now…..No need for the Haffa short sale in my opinion….Most homeowners cannot continue to make payments even if it only takes two months. The 3k they will get will have already been spent on the mortgage. Also many clients like short sales that take 6 months to a year because they can get back on their feet.
Just my two cents.