• 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 deed-in-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.

• 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.

• 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.

• 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:
• Does not qualify for a HAMP trial period plan.
• Does not successfully complete a HAMP trial period plan.
• Is delinquent on a HAMP modification (misses at least 2 consecutive payments).
• 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.

• $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.

• 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.)
• Property valuation.
• Review of title.
• Borrower notice if short sale or DIL not available (to borrowers that have expressed interest in HAFA). 

• 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.  

• 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.

• Short Sale Agreements must be executed and returned to the servicer no later than 12/31/2012.

• Go to www.Realtor.Org/Shortsales for links to the guidance, these FAQs, a summary, and much more information about short sales.

• Some of the unique aspects of the GSE HAFA programs include:

  Additional Freddie Mac HAFA Eligibility requirement that borrower be more than 60 days delinquent and borrower’s cash reserves must be less than the greater of $5000 or three times the currently monthly payment.

  Clear definition by Fannie Mae of allowable transaction costs for a HAFA Short Sale including:

  • “Real estate sales commissions customary for the market. The servicer may not require that the commission be reduced to less than 6 percent of the sale price of the property”
  •  “Homeowners or condominium association fees that are past due, if applicable”
  • “Wood destroying pest inspections and treatment, when required by local law or custom”

  Higher Services Incentive of $2,200 for successful GSE HAFA Short sales (and $1,500 for successful GSE HAFA DIL's, similar to non-GSE HAFA).

  Per Fannie Mae, mandatory consideration of the HAFA DIL option and the Fannie Mae Deed-to-Lease program (for interested borrowers), if the Short Sale option fails (i.e., the property doesn't sell within the marketing period agreed upon in the SSA or if the SSA is terminated (consistent with program guidelines) prior to its expiration.

  Per Fannie Mae, requirement that without Fannie Mae's prior written permission, a servicer must not consider or solicit a borrower for a Fannie Mae HAFA short sale or DIL with respect to a mortgage loan if:

  • A foreclosure sale is scheduled to be held within 60 days of the borrower's request for a HAFA transaction, or
  • A foreclosure proceeding could be initiated and reasonably be expected to result in a foreclosure sale being held within 60 days of the borrower's request for a HAFA transaction, or
  • A foreclosure sale is scheduled to be held or a foreclosure proceeding could be initiated and reasonable be expected to result in a foreclosure sale within 60 days of a determination that a borrower is ineligible for HAMP, or
  • The loan is secured by a property in Florida on which foreclosure proceedings are pending, judgment has been obtained, or a hearing on summary judgment or trial is scheduled within 60 days

  The Certified HAFA Specialist training program will include the just released Fannie/Freddie HAFA guidelines along with details about the HAFA process, timelines and documents. Visit www.hafacertification.com to begin your training today.

Chapter 18: Short Sale Articles