HAFA Begins April 5

If you are considering getting involved in a short sale, either as a seller or a buyer, you should be aware that the Home Affordable Foreclosure Alternatives (HAFA) program starts on April 5.

HAFA provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers who: 1) do not qualify for a Trial Period Plan; 2) do not successfully complete a Trial Period Plan; 3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or deed-in-lieu.

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer - provided title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation.
Quoted from Making Home Affordable website

It's this last paragraph the will be most directly addressed come April 5. Here are the major changes that will take effect:

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 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%);

Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed);

Uses a standard process, uniform 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 a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders; and

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.

To help you better understand HAFA and its guidelines, The National Association of Realtors has released a brochure about the Home Affordable Foreclosure Alternatives Program.

You can see a text version of this brochure here.