REO Settlement Speeds Up Short Sales

Short Sales Will Speed Up

One of the problems with short sales is to get a buyer to make an offer and wait until the lender approves that short payment.  The Attorneys General of nearly every state in America are in the process of settling litigation with all the major banks over violations of the foreclosure procedures.  However, this settlement that is primarily designed to straighten out the sale of bank owned properties (REOs) appears to include a component that will speed up short sales.  The quicker the processing, the more buyers will ”stay the course” and the more short sales will close.

Realtor Magazind quotes an article in the Real Estate Daily News that says

  As part of a settlement with state attorneys general, the five largest mortgage servicers are adopting new requirements for short sales, which is expected to speed-up what has been known as a lengthy process.

Here are some of the new requirements for servicers under the settlement: 

• Servicers must provide borrowers with a decision within 30 days after receiving a short sale package request. 
• Servicers will be required to notify a borrower, also within 30 days, if any necessary documents are missing to process the short sale request. 
• Servicers must notify a borrower immediately if a deficiency payment is needed to approve the short sale. They also must provide an estimated amount for the deficiency payment needed for the short sale. 
• Servicers are also required to form an internal group to review all short sale requests. 
• Banks will be considered in violation of the settlement requirements if they take longer than 30 days on more than 10 percent of the short sale requests. Violations can carry fines of up to $1 million and $5 million for repeat offenses. 

This article spreads good news. One of the problems with short sale’s loss mitigation departments is that they are understaffed, so the overworked negotiators have a hard time handling their case load.  If there are penalties of $1 million to $5 million, the lenders should greatly expand their staff to spend the money on good employees who will be a benefit to their firm instead of paying penalties. When you consider that a lender makes between 20% and 30% more from a short sale than from selling the same property after a foreclosure, this expansion of the loss mitigation department will benefit the lenders tremendously.  At the same time, it will benefit sellers who will get quicker approvals, buyers who will be able to move in more quickly and Realtors who will have a smoother process and more closings. 

This sounds like good news to me.  How does it sound to you>

HAFA Short Sales Latest Revisions

The HAFA Short Sale Process Just Changed Again

On March 9, 2012 the US Treasury issued Supplemental Directive 12-02 that has revisions to the Home Affordable Foreclosure Alternatives (HAFA) Short Sale program.   The changes will let more sellers qualify for HAFA and make it possible for more sales with junior liens to close.  For example, I did a short sale on the townhouse in the picture and the seller might have qualified for a HAFA Short Sale under these new rules.

A HAFA short sale only applies to a seller’s principal residence.  Under the original Treasury regulations, the owner had to be occupying the home to qualify for HAFA. There was an exception to this rule if the owner had moved over 100 miles within the last 90 days for work.  That requirement was later modified to be that the owner could have moved within the last 12 months for any reason.  Now, the policy is “There are no longer any occupancy requirements for HAFA eligibility.”   The property still needs to qualify as the owners principal residence under Section 121 of the Internal Revenue Code, which requires that an owner live in the property for two years in the property during the five years before the sale (don’t you love how complex IRS rules are?).  I assume HAFA still has the policy that the seller must not have purchased another principal residence in the year before the sale, but the directive that changes this rule does not discuss that issue.

What does this mean?  More sellers qualify for HAFA.  The owner of the townhouse in the picture had moved out of it before doing a Short Sale and had not moved 100 miles, so she did not qualify under the regulations in effect at the time.  Now, the fact that she moved would not have disqualified her.

Junior lien holders are loans recorded against the property after the first loan.  The most frequent example is a Home Equity Line of Credit (HELOC) that is recorded as a second loan on the property.  The old rules limited the total payment to all junior lien holders to add up to $6,000.  That number is increased to $8,500.

Governmental regulations are occasionally humorous.  HAFA applies to first loans only.  This regulation restricts what you can do with second loans.  The lenders who have second loans do not have to obey these rules.   It is just like the speed limit laws of one state do not apply to the people driving in the next state.  However, this revision will allow the lenders who have the first loan to offer more money to the lenders who have the second loan.

What does this mean?  More second lenders will accept the HAFA contract so more HAFA Short Sales will close.

The seller who qualifies for a HAFA Short Sale receives a relocation incentive of $3,000.  This solves the problem of getting a seller who has no money to move out of the house.  The new directive amends this policy to allow the payment only if the borrower or a tenant currently occupies the property and is required to move when the Short Sale closes.   For once, a HAFA regulation makes sense.  You pay relocation benefits only if someone has to relocate.   This will give the lenders who approve the Short Sale more money in these situations.

What does this mean?  The incentive to do a HAFA Short Sale just decreased, so some sellers who were encouraged to do a HAFA short sale by receiving $3,000 at closing might make a different decision.

There are additional revisions to the regulations for monthly payments (the borrower can make the full payment during the Short Sale) and the reporting of a HAFA Short Sale to the credit reporting bureaus. 

Is this good news? Yes.  More sellers qualify, more sales will close and the lenders only pay relocation when someone relocates

How To HAFA: The Process from Start to Finish

How Do You Do a HAFA Short Sale? Here’s the 2012 version.

Home Affordable Foreclosure Alternatives (HAFA) have some major advantages over the original versions of Short Sales. A walk through the whole process will show you the advantages while teaching you the procedure.
As a Realtor, one of the first things you discuss is why a homeowner wants to move. At some point, you need to discuss the value of the home compared to the amount of the mortgage. There are an abundance of homeowners where the amount of money you can get from the sale of the home will not fully pay off the mortgage(s), and those homeowners need to consider a short sale. To qualify for a Home Affordable Foreclosure Alternatives (HAFA) Short Sale, the home needs to be the primary residence, either now or within the last year. Next, there needs to be a hardship that has changed the owner’s ability to pay the mortgage. Finally, they need to be in a poor financial condition so that they do not have resources that would enable them to continue to make the payments on their home. If they meet these criteria, they are good candidates for HAFA. If they want to consider selling their home with a HAFA Short Sale, I ask this kind of seller to get the entire short sale package together and meet me at my office. If they are willing to get the package together and to take the time to come to my office, it is an indication that they are motivated enough to work their way through this long process.
While you are interviewing the sellers, you need to find out who is the servicer for their loan. Most people call the company who receives their payments their lender, but lets call them the loan servicer to differentiate the servicer from the investor who owns the loan. It is important to review the individual guidelines for the loan servicer you will be working with because these “the rules of the game” may differ from one servicer to another. To find their rules, go to the HAFA Matrix that is on the MakingHomeAFfordable.gov website, which is at http://tinyurl.com/7gx4rcg, and look up the loan servicer for this property. You will get the servicer’s guidelines i.e their interpretation of how to do a HAFA short sale. Every lender is required to have their matrix posted on this website. For example, the guidelines in the Making Home Affordable Manual allow the servicer to require the seller to make monthly payments during the time the property is for sale. However, the Wells Fargo Matrix says that no monthly payments are required, and this is important information for your seller with a Wells Fargo first loan.
Get as much information as you can about the loans on the property, such as the loan number and outstanding balance. Why? You want to see which version of HAFA you might be doing. There are three versions: (1) Fannie Mae HAFA (2) Freddie Mac HAFA and (3) HAFA for Non-GSE Loans i.e. ones that are not Fannie Mae or Freddie Mac loans and ones that are not guaranteed by FHA, VA or USDA. You might also have a FHA loan, and it has its own version of a short sale. For the sake of this discussion, we will do a Non-GSE HAFA in this chapter, and you can look at the other chapters that deal with the differences between the various versions of HAFA to see what you need to do differently. First, check to see that the outstanding balance of the loan is $729,750 or less, as that is one of the requirements to qualify for this type of HAFA .
Before you meet with the sellers, send them a letter of authorization for their signature because that authorization is necessary for you can talk to their lender. Include in that authorization permission to check any website to see what kind of loan that they have. After you receive that authorization, go to www.FannieMae.com/loanlookup to see if it is a loan owned by Fannie Mae. If it is not, go to www.FreddieMac.com/mymortgage to see if the loan is owned by Freddie Mac. You need to have permission to look up a property on these websites, so get the authorization first. Ask the buyers to bring their loan statements so you can find out if it is an FHA, VA or USDA loan. If it is none of these, you proceed with this non-GSE version of HAFA.
The loan servicer’s matrix will also tell you what documents are required by the lender to process a Short Sale. Send the list to your sellers and ask them to bring everything on the list to the appointment. Also, be sure to have them bring any correspondence they have received from their loan servicer, as you need to know what has been going on before you step into the picture. If you are confident that they will qualify for HAFA, send them the HAFA documents that you will need to start the process, like the MHA Request for Mortgage Assistance (RMA) and the MHA Third Party Authorization Form. It may be a good idea to send the Dodd-Frank Certification because it will have to be signed eventually, but most servicers include that with the Short Sale Agreement so you could skip it at this stage. The servicer would like it if find these forms on your loan servicer’s website, because it is the easiest for them to review. However, you can find all the forms on the HMPadmin.com website at http://tinyurl.com/6o9ng3y (click on the Borrower Documents Tab).
While you are on that website, you will find all the standard forms for a HAFA Short Sale. It is a good idea to review all of them because you will be dealing with them throughout the HAFA process. One of the benefits of HAFA is that standard forms are used, so your understanding of the documents on the HMPadmin website will cover all of the lenders you work with. Normally, the only change the lender makes to the standard form is to put their name and logo on it.
The meeting to discuss listing the home is similar to any other listing appointment, except that the sellers need your special talent of doing short sales so the negotiating dynamics are different. They do not try to cut your commission because it comes out of the proceeds of the sale, so long as the borrower or a tenant is living in the house.  The regulations issued March 9, 2012 restrict the payment of relocation assistance to situations where someone is actually relocating i.e. no payment if the house is vacant. Also, it is good for you to let them know that they will get a $3,000 relocation allowance upon the successful closing. This gives them more incentive to finish the sale. Finally, they are not trying to get you to over value the home, because they will get the same amount no matter what the sales price. Since they want the process to finish quickly, they will want the home priced for a quick sale.
A critical part of the first meeting is to review any documents they have received from the lender. If the lender has sent a letter inviting them to do a HAFA short sale, you hope your meeting is less than 14 days after the date of the letter. If more than 14 days have passed, the servicer does not have to allow the seller to do a HAFA short sale. If they are about to start a foreclosure, you need to hurry and submit your HAFA request because some lender’s guidelines to their servicers prohibit considering the property for a HAFA short sale if the foreclosure process has started. So, if you see a letter saying the lender is going to accelerate the entire amount due on the loan, get your HAFA request in quickly, because the foreclosure has not started, but it is about to. Also, if the foreclosure is less than seven business days away, some servicers will not stop the foreclosure, relying on the wording in the Making Home Affordable Manual concerning Escalation Cases where they do not have to stop the foreclosure if it is less than 7 business days away. As a side note, if you have a Fannie Mae loan, you need permission from Fannie Mae (not just the servicer) to start a HAFA short sale if the foreclosure sale date is 60 days or less in the future.
HAFA requires certain language in listing agreement . It must say “Seller may cancel this Agreement prior to the ending date of the listing period without advance notice to the real estate agent or broker and without payment of a commission or any other consideration, if the property is conveyed to the mortgage insurer or the mortgage holder. Sale of the property is contingent on written agreement of all sale terms by the mortgage holder and mortgage insurer (if applicable). “ Be sure to put that clause in the listing, or prepare an amendment to add that language, because the servicer will require that wording to be in the listing agreement.
The regulations state that the borrower can request consideration for HAFA in a number of ways, even by talking to the servicer over the phone and just asking for it. It is a better practice to use a letter to request that the lender review the borrower and the property for a HAFA short sale so that you have proof of that request. Typically, we send the letter as soon as possible, even if we do not have the entire HAFA package together, because it starts the 45 day time limit running. The loan servicer has 45 days from the request to approve or deny the HAFA request, and has to acknowledge the HAFA request in writing within 10 days. Get the rest of the package to the loan servicer as quickly as possible so that the package is complete by the time any reviewer looks at it.
Mortgage insurance is one of the worst things in a non-HAFA short sale, because the mortgage insurance company frequently asks for unreasonable contributions from the seller, who is broke and unable to contribute. Usually, that request by the mortgage insurance company has to be converted into an increase in the payment by the buyer. Then, mortgage insurance companies frequently ask for the seller to sign a note with extended payments to pay a portion of the deficiency i.e. the amount that the mortgage payoff is “short”. When it works, one of the benefits of HAFA is that the mortgage insurance company has to agree with the terms of HAFA sale and agree to release the seller from any additional liability without any additional payment and without signing a note. However, I have had applications for HAFA short sales turned down because the mortgage insurance company will not agree with these requirements of the Short Sale Agreement (SSA).
If the servicer approves the request for a HAFA short sale, you will get a Short Sale Agreement (SSA) filled out with the terms of their approval. The agreement must be for at least 120 days, so you will get that long to sell the property. That time limit can be extended up to a total term of 12 months from the beginning of the Short Sale Agreement (SSA).
The Short Sale Agreement (SSA) also resolves the most troublesome issue in short sales. The seller will have no liability for any deficiency in the payments after the sale closes. The lender(s) are not getting fully paid in a short sale, because the payment is “short”. The amount by which it is “short” is called the deficiency. HAFA requires that any liability for the deficiency be waived by all of the lien holders and the mortgage insurance company, if there is one. So, the seller has no liability to any of the mortgage holders or their insurers after the sale closes. The Short Sale Agreement (SSA) also requires that the servicer cannot require any payment by the seller for any of the services rendered during the sale.
One of the required terms is that the property must be listed with a licensed professional, so there are no For Sale By Owner HAFA Short Sales. Since a real estate professional is required, there is going to be the payment of a commission. HAFA settles the battle that has been raging over cutting Realtor’s commission. The Short Sale Agreement (SSA) approves the real estate commission found in the listing agreement so long as it is 6% or less. The Short Sale Agreement (SSA) also specifies the other closing costs that the lender will allow to be paid on the closing statement.
As a part of the review of the request to do a HAFA short sale, the lender gathers information about the market value of the property, either by doing an appraisal or a broker price opinion (BPO). Using this opinion of market value, the Short Sale Agreement (SSA) will either specify the asking price for the property, or provide the minimum net proceeds (MNP) that the lender will accept. This can be wonderful information. At worst, it will tell you how to price the property. At best, it tells you exactly what payment to the lender needs to be shown on line 504 of the HUD closing statement. Knowing the minimum net proceeds allows you can work backwards by adding in the costs of the sale to determine the lowest price that will be accepted by the lender.
The servicer cannot raise the price or the amount of the minimum net proceeds during the period of time that the Short Sale Agreement is in effect. They can lower the price, and that is necessary on many occasions.
If the appraisal or broker price opinion (BPO) that was done by the lender is too high, the amount of the payment in the Short Sale Agreement (SSA) will be too high. In a market full of bank owned properties and discounted sales, putting a high price on a property is the kiss of death. The Treasury regulations require the servicer to have a procedure to dispute incorrect valuations, so use that procedure to correct any errors. It is better to have this battle at the beginning of the listing period instead of a fight that delays the review of an offer to purchase, where the impatient buyer may walk away if the process takes too long.
The regulations require that the servicer sign the Short Sale Agreement (SSA), but most of the ones I have received have not been signed by the servicer. The seller needs to sign and return the Short Sale Agreement (SSA) within 14 days, so do not miss that deadline.
If you have a Short Sale Agreement, use that in your marketing to separate your property from other Short Sales on the market. Be sure you advertise that you have a HAFA approved short sale and explain what that means in detail in the Multiple Listing Service listing. By getting a Short Sale Agreement, you have already established that the seller qualifies for a HAFA short sale and you have already determined the price that the lender will accept. All you need now is an offer that gives you the minimum net proceeds (MNP).
When you get an offer, you have three business days to submit it to the servicer. Don’t be late. You submit a Request for Approval of Short Sale (RASS), along with a copy of the signed sales contract (and all its addenda) along with proof that the buyer has the funds to close (for a cash sale) or a pre-approval letter from a lender (for a sale with financing). If there are junior liens, you also need to submit information regarding the status of the negotiations with those lien holders. If you are doing a Short Sale on Equator or Res.net, you upload the information to that portal and follow up with the required documents.
The regulations allow electronic signatures on documents like the sales contract. So, you can use something like DocuSign. However, many servicers will not allow that. Currently, Bank of America does not allow electronic signatures on Short Sales that are processed through Equator. Isn’t it ironic that it is permissible to use a totally electronic system like Equator to review the entire short sale, but you cannot use an electronic system like DocuSign to sign the sales contract.
If you have junior liens, like home equity loans, the maximum amount to be paid to all of those liens used to be limited to $6,000 by the HAFA regulations, but they just changed on March 9, 2012 to allow a total of $8,500.  One of the “joys” of the HAFA regulations is that they only apply to first lien holders. The second liens do not have to abide by these regulations. You have to enjoy the fact that the second lien holders are the ones that take the largest loss in a HAFA Short Sale, yet HAFA is a regulation that does not govern them. It is about the same as passing a speed limit law in one state and trying to get the people in the next state to abide by it. Just be thankful that the regulations were revised to eliminate the former requirement that the junior lien holders could only get 6% of the outstanding balance. However, that 6% requirement still remains in Fannie Mae short sales. You need to show the payment to the junior lien holder(s) on the Request for Approval of Short Sale and any HUD closing statement submitted for approval.
The servicer has 10 business days to approve or disapprove the proposed sale. I had one Short Sale with Countrywide during the transition to Bank of America that took 14 months to get approved. By comparison, ten business days is a dream. Unfortunately, I have had a number of HAFA Short Sales where the servicer takes longer than that.
If you know the minimum net proceeds that has been approved in the Short Sale Agreement and you know that the amount to be paid to the lender on line 504 of the HUD closing statement is equal to that amount (or greater), you know you have a deal from the time you submit the proposed contract. The regulations say the servicer “must approve the RASS if the net proceeds” equal or exceed the Minimum Net determined in the Short Sale Agreement. If the amount from the sale proceeds is less than the amount approved in the Short Sale Agreement (SSA), it is still possible that the servicer can approve the proposed sales contract. If they cannot approve it, get a counter offer to take back to the buyer and explain that it is the minimum that the lender will accept. Many buyers will increase their offer after they have invested all the time and energy to try to get a property to live in.
What if you get an offer before you get the Short Sale Agreement (SSA) approved, or if you did not ask for a HAFA short sale when you took the listing. Submit an Alternative Request for Approval of Short Sale (Alternative RASS) to the servicer. They have 45 days to accept, reject or counter the terms of the proposed contract of sale.
A HAFA short sale has to be an “arm’s length” transaction where there is no collusion among the participants. Most servicers have an arms length affidavit that they want to have signed by the buyer, seller and all the Realtors and the signatures have to be notarized.
The HAFA regulations prohibit the servicer from asking for a financial contribution from the seller or any of the Realtors. This is both a blessing and a curse. While it is good to avoid this form of negotiation, sometimes a closing is delayed and someone needs to throw in some money to pay the additional property taxes and other charges that accrued because of the delay. There are a million other reasons why some additional money is needed to meet the minimum net proceeds required by the lender. The Realtors and the seller cannot make that payment on the HUD. So, this requirement takes away one of your tools to close the sale, but it keeps more money in your pocket.
The seller gets paid a $3,000 relocation incentive at closing. The seller can use some of the $3,000 relocation allowance to pay for transaction costs (e.g. his lawyer), overdue utility bills and minor repairs. The seller has to give written instructions to the escrow or closing attorney to do this. This relocation incentive cannot be used to pay junior liens, and the servicer cannot require the seller to make any payments as a condition of approval (the buyer has to volunteer to do that).
If the proposed contract is approved in response to your RASS or Alternative RASS, you will get a written approval of the Short Sale that has instructions for closing the sale. Give this to your escrow officer or closing attorney. Be sure to review the letter of approval to verify that the terms of the approval are consistent with the terms of your sale. In other words, check all the amounts that are approved to be paid on this approval to be certain that they are consistent with the amount you propose to pay on the closing statement. The most important number is the amount to be paid to the lender on line 504 of the HUD because that is the minimum net proceeds that they will require no matter what happens to any of your other costs.
One of the terms of this approval will require that the HUD closing statement be sent to the loan servicer for review just before closing. Some servicers want it at least 24 hours before closing and others like some Chase offices want 72 hours. You have to send the HUD for approval before closing, otherwise the servicer can refuse to perform the short sale. My favorite irony occurred when I submitted a HUD to Bank of America nine days before closing. Bank of America will not allow the HUD to be uploaded to Equator more than five business days before the closing date, so it was rejected. It was resubmitted as early as possible on the fifth day before closing. The reviewer asked that the HUD be changed, and a revised HUD was submitted. The reviewer thought of another change, so it was revised and submitted again. Then, there was a request for another new change, and a revised HUD. You get the picture, more changes that were not requested before. The process of making new requests for revisions continued so long that the closing was nearly delayed in order to get the approval of the loan servicer. However, if the process was easy and considerate, it would not be a Short Sale.
By the way, the seller is not the only one who gets an incentive. The servicer gets $1,500 for every short sale that closes. Also, the investor gets one third of the amount that it allows the junior lien holders to be paid, up to a maximum of $6,000. For example, if the investor who owns the first loan allows the home equity loan in second position to be paid $6,000, the investor receives $2,000.
How many times have you had to call a servicer when you are working on a Short Sale and beg for the foreclosure to be postponed? I had one with Chase that took everything but an act of Congress (even the managing partner of the foreclosing law firm was working to get it postponed), and Freddie Mac postponed it only a few hours before the actual sale. You do not need the adrenaline rush of facing disaster right up until moments before your deal is killed by a foreclosure sale. You do not get that with HAFA.
The HAFA process gives you protection from the completion of a foreclosure sale. The servicer may process the foreclosure, but cannot complete the foreclosure sale during any of these times:
(1) While determining the borrower’s eligibility and qualification for HAFA.
(2) Until a date that is 5 business days after the date that the servicer sends the notice
that a HAFA short sale is not available.
(3) While awaiting the timely return of a fully executed SSA.
(4) During the term of a fully executed Short Sale Agreement (SSA)
(5) Pending transfer of property ownership based on an approved sales contract per the Request for Approval of Short Sale (RASS) or Alternative RASS.
(6) Pending transfer of property ownership via a Deed in Lieu by the date specified in the SSA or Deed in Lieu Agreement.
(7) Until the servicer has resolved an Escalated Case
So, you will not have to call and beg to get the foreclosure sale postponed so long as you fall under one of these categories.
What if you do not get a contract from any buyer? If the time specified in the Short Sale Agreement for the marketing of the home is about to expire, ask for an extension of the Short Sale Agreement. If you let the time run out, some servicers have taken the position that they do not need to review another request for a HAFA short sale. So, do not let your HAFA approval of the Short Sale Agreement die. Be sure to request an extension well in advance of the ending date of that agreement.
This is a long walk through the process. Even though it is long, it is the best process we have, because it approves the seller for a short sale while it tells the agent the amount needed for the sale so that the agent does not need to guess at the price needed for a contract. Then, it speeds up the review after a sales contract is submitted to keep the buyers from walking away. It greatly encourages a seller to do the short sale by eliminating the seller’s liability for a deficiency (and the $3,000 payment does not hurt). Also, it protects the Realtor’s commission and postpones foreclosure to allow the Short Sale to succeed. It still needs improvement, but it is the best procedure we have so far.

Treasury Clarifies HAFA Short Sale Regulations

On March 30, 2011, the Treasury clarified the rules for the Home Affordable Foreclosure Alternative Short Sales, better known as HAFA, in a directive whose rules become effective June 1, 2011. If you want the ultimate resource for dealing with HAFA, get the Making Home Affordable Handbook for Servicers of Non-GSE Mortgages that can be found at http://tinyurl.com/87hqp8n . Most of the material on the Home Affordable Foreclosure Alternative program in in Chapter 4 from pages 121 to 135. It is a great cure for insomnia, just try to read the entire manual and you will be asleep.

There wasn’t enough paperwork and administrative detail in short sales, right? I mean the short sale packages were only about 100 pages. So, the Dodd-Frank Wall Street Reform and Consumer Protection Act created the requirement that the Dodd-Frank Certification be signed as a part of the HAFA short sale package. Dodd- Frank prohibits people convicted of certain crimes from getting help under the Making Home Affordable program, and HAFA is part of that program. The Certification makes the borrower “ certify under penalty of perjury that I/we have not been convicted within the last 10 years of any
one of the following in connection with a mortgage or real estate transaction
(a) felony larceny, theft, fraud, or forgery,
(b) money laundering or
(c) tax evasion.”

I enjoy the way that is worded. It says you have not been convicted of any one of the following. What if you were convicted of two of the following? The time limits in this Treasury directive mainly apply to HAMP modifications. Even under HAFA, if you do not return the Dodd-Frank Certification within the time limit, the lender does not have to proceed with processing your request. As applied to this discussion, they could refuse to approve your request to initiate a HAFA short sale or approve a sales contract for a short sale under HAFA. So, do not give the servicer the ability to close your file. They have too many files to handle already, so it is tempting to someone processing your request to get your file off their desk by closing it for failure to submit documents on time.

The Making Home Affordable Manual makes it clear that the Escalation Case procedure applies to HAFA, in Section 5 of Chapter IV. The Escalation Case procedure is found in the first chapter of the manual that deals with general requirements of the Making Home Affordable program, and HAFA is one part of that program. The HAMP program has a separate chapter and HAFA has a separate chapter and both programs have the Escalation Case procedure.

Escalation is an extremely valuable procedure for Realtors and sellers using the HAFA process for a Short Sale. This directive specifies time limits for the review when you ask for your case to be escalated. The servicer has to acknowledge your request and indicate when they will resolve it, with a date that is not more than 30 calendar days from the date the servicer received the escalated case. If they do not resolve it within that time, they have to give you reports every 15 days until it is resolved.

The servicer’s staff handling the escalated cases must be accessible by phone and email. How many times have you tried to call a negotiator and gotten nowhere, with the servicer even refusing to give you an email address for the people involved? Get the file escalated and you are entitled to a phone number and email address.

The servicer actually has to respond to the request for escalation and determine what should be done. If the escalation was referred to the servicer by the HAMP Solution Center (HSC) or Making Home Affordable Help, the servicer cannot come to a determination without the concurrence of the referring organization. To get in touch with Making Home Affordable Help, call the Making Home Affordable hotline of 1-888-995-HOPE (4673) and ask for MHA Help. So, if you want a more powerful review, call the hotline, ask for MHA Help and get your escalation initiated in a manner that requires the review not only of the servicer but of the MHA Help desk.

One of the best uses of escalation is to postpone a foreclosure. The MHA Handbook states that “A servicer may not refer any loan to foreclosure or conduct a scheduled foreclosure sale (except , , ,) unless and until the servicer has resolved the Escalated Case.” If you are not getting an answer to your proposed short sale and they are going to start to foreclose, or worse yet the foreclosure sale date is looming, contact the servicer and ask for Escalation. If they do not respond properly, contact the MHA Hotline and ask for MHA Help. During the review of the escalation, they cannot foreclose, with certain exceptions e.g. the servicer makes every effort to postpone the foreclosure and the court or governmental agency that performs the sale refuses to postpone it, something that is as rare. The most important exception to this rule is that the servicer does not have to postpone the foreclosure sale if the escalation is received “after midnight of the seventh business day prior to the foreclosure sale date.” In other words, if you are getting within ten calendar days of the foreclosure sale date, you need to escalate right away.

Remember the revision to the HAFA rules that allowed a seller (borrower) to move out of their primary residence for up to a year and still qualify for HAFA. This directive says the seller has to provide third party verification that it was their primary residence. The seller’s affidavit is not enough proof. So, get prepared with utility bills and other proof that the seller lived there prior to moving out.

Within 10 business days, loan servicers are now required to acknowledge in writing that the servicer has received your request for the initiation of a HAFA short sale, or the Alternative Request for Approval of a Short Sale (RASS) that reviews a proposed sale. This written response must include the servicer’s evaluation process and a timeline for their decision. So, they have to tell you what they are going to do and estimate how long it will take to do it.

Remember the last revisions to the Home Affordable Foreclosure Alternative (HAFA) short sale rules that extended the time for the loan servicer’s response to 30 days? Here we go again. This one extends the time for the response to 45 days. So if you submit a request to get a seller and a home approved for a Home Affordable Foreclosure Alternative (HAFA) Short Sale, or if you get an offer and want to submit an Alternative Request for Approval of Short Sale (Alternative RASS), the loan service has 45 days to give you an answer. For the request to initiate a HAFA short sale, the answer is either a rejection or an approved Short Sale Agreement (SSA). For the response to a proposed sales contract under an Alternative RASS, they must give you an approval of the short sale contract, rejection of that contract or a counter offer within 45 days.

You would think that 45 days would be enough. BUT NOOOO! If the servicer is unable to respond within 45 calendar days they must send a written “status notice” to the borrower (seller) and written updates every 15 calendar days after that until the servicer responds. How much do you want to bet that the next revision gives the servicers even more time. The biggest reason that buyers shy away from short sales is that they take so long to get an approval. The HAFA short sale program is supposed to make the process so much quicker that it will attract more buyers. The more time that is given to the servicers, the fewer short sales and the more foreclosures.

Short sales have to be “arms length” transactions so that there is no underhanded dealings that deprives the lender of the proper proceeds. The new directive creates an exception for non-profit organizations that purchase HAFA short sales and rent them or re-sell them to the former owners. Otherwise, the rules for “arms length” transactions are so strict that I have even had servicers question a short sale when the buyer is a tenant in the property. Some lenders take so long to review short sales that I have had to allow the buyer to move into the property under a lease agreement in order to keep them from walking away. Then, you get the servicer who caused the delay creating more problems by questioning the validity of the transaction. It seems that when you solve one problem, the servicers are able to create another one.

These revisions provide some gain and some loss. Provided the escalation provisions apply to short sales, they provide a powerful tool to get your Short Sale on track and to prevent a foreclosure in the meantime. On the other hand, the servicers get more time to review HAFA requests, and all of the delays hurt the ability to keep buyers interested. These changes make you realize that you win some and you lose some.

Changes in HAFA Short Sales

The treasury revised the regulations for the Home Affordable Foreclosure Alternative (HAFA) short sales December 28, 2010 with mofications that were effective February 1, 2011. These regulations do not apply to loans owned by Fannie Mae, Freddie Mac or insured by FHA, VA or USDA. In other words, the rules apply to everyone except the government. I find it entertaining that the government makes these rules that apply to everyone except the government.

The revisions appear to be in response to the fact that few HAFA short sales were approved in 2010, so the regulations made it easier to qualify. The regulations still limit HAFA to loans originated before 2009, so recently refinanced loans do not qualify. Also, the loan amount of the loan has to be $729,750 (which does not apply to Fannie Mae and Freddie Mac HAFA’s, but those are “different animals”). To increase the numbers of HAFA short sales, the requirement that the mortgage payment exceed 31% of the borrower’s gross income was eliminated. HAFA was created to be a follow up to the Home Affordable Modification Program (HAMP), so that people who could not get their problems worked out with a HAMP modification could pursue a HAFA short sale. HAMP has the 31% requirement. Now, HAFA is not restricted by that.

HAFA applies to the borrower’s principal residence, not to second homes or investment property. The former HAFA rules severly restricted the number of people who could qualify if the borrower had moved out of the property because the property could only be unoccpied (by the borrower) for up to 90 days AND the borrower had to move over 100 miles for work. That is all out the window with the new rules. The property can be vacant or rented to someone else for up to a year. There is no requirement for how far away the borrower moved. These time limits are for the time up to the date of the Short Sale Agreement (SSA) or the Alternative Request for Approval of Short Sale (Alternative RASS).

The former regulations limited the payments to the junior lien holders to 6% of the outstanding balance. So, a second loan of $20,000 could receive a maximum of $1,200. That was a problem because most lenders in second position would not settle for less than 10%. The 6% limit has been discarded by the new regulations. The total of the payments to all the junior lien holders is limited to a total of $6,000, but there is no limit on what percentage of the loan is paid. The investor that owns the first loan still gets an incentive payment from the Treasury of one third of the amount that they allow to be paid to the junior lien holders. So, the investor will receive $2,000 if they allow the second and third loans to have payment that add up to $6,000. (Note: a later revision to the HAFA regulations increased this amount to $8,500 for Non-GSE HAFA short sales.)

The borrower asks the loan servicer to allow them to do a HAFA short sale. The new regulations say the servicer is supposed to approve or disapprove that request and send the Short Sale Agreement if approved within 30 calendar days. Don’t hold your breath! Compliance with this time limit is dismal. Similarly, if a borrower sends the servicer a sales contract and all the documents required by an Alternative Request for Approval of Short Sale (Alternative RASS), the servicer is supposed to evaluate that proposed contract and approve it, disapprove it or give a counter offer within 30 calendar days. Again, do not hold your breath when it gets close to the 30 days because you may turn extremely blue. The compliance with this time limit is improving, but do not promise your buyer that there will be an answer in 30 days because most of the time the buyer will be disappointed. However, these time limits should increase the number of HAFA short sales because more buyers will be willing to wait for the approval if it comes in a shorter time.

Realtors were not doing short sales because they are much more work, then at the end of the process the lenders would steal the Realtor’s commission. HAFA created regulations that the lenders could not touch the commission if it was six percent or less. So, the lenders hired consultants and contractors to do some of the work required by HAFA and charged the cost of that work to the Realtor’s commission. The new regulations prohibit this theft of the commission that the Realtor has earned.

If you want to read the complete regulations and the revision to the short sale manual that the lenders use, go to http://tinyurl.com/6lralo5 .

These amendment to the regulations allow more borrowers to qualify for HAFA, let more vacant properties be considered for HAFA, allow more flexibility in negotiating with junior lien holders, set time limits for the lenders to respond and eliminate a practice of charging the Realtor for contractors hired by the servicer. These changes not only increase the number of people and houses that qualify for HAFA, they encourage a a quicker response and fair compensation so that more real estate agents will be willing to work with a HAFA short sale. The additional flexibility in negotiating with junior lien holders should allow for more negotiations to be successful and increase the number of short sales that close. Things are moving in the right direction.

Fannie and Freddie’s HAFA Program: Good News and Bad News

Fannie Mae and Freddie Mac loans were exempt from the HAFA short sale program that was put into effect by the Treasury on April 5, 2010. Fannie Mae has just created its own version of HAFA with regulations that you can find at http://shortsalesr.us/FannieMaeHAFA.pdf. Similarly, Freddie Mac has created its version of HAFA with regulations you can read at http://shortsalesr.us/FreddieMacHAFA.pdf .

Does this addition to HAFA make you happy? In general, the terms are similar to the Treasury’s short sale program that is supposed to expedite the review and approval of short sales by pre-approving the seler for the short sale and establishing the amount the lender will accept at the time the Short Sale Agreement (SSA) is entered into. In other words, you qualify the seller and get the amount needed from the sale at the time you list the property. However, there is a difference with Fannie and Freddie. With the Treasury’s program, the lender considering the short payoff may tell the Realtor how much they will settle for. For those of you who do a lot of short sales, they will specify the amount they want to be paid at closing as shown on line 504 of the HUD.

In the Fannie and Freddie program, the servicer is prohibited from telling the seller, buyer and Realtor what this amount is. Instead, the servicer will establish an asking price based on the condition of the market in the area. Who is better at setting an asking price: (1) the Realtor who works there every day or (2) a Loss Mitigation negotiator with files from all over America? When the contract is submitted, you hope that this asking price results in the Minimum Acceptable Net Proceeds (MANP). If you do HAFA short sales, you have to love the acronyms .

Having the Broker Price Opinion or appraisal already done at the time the offer is presented is a benefit, and the servicer does not tell the Realtor what the acceptable net proceeds are in most of the non-HAFA short sales (except for FHA short sales where you know to the penny). So, in this manner the program gives a benefit of the BPO already being done and the same result as the old fashioned short sale where you play “guess again” on the amount the lender wants. But, it could have been better if Fannie and Freddie followed the Treasury’s lead.

The other bad news is that the servicer tells the Realtor how to market the property, and supervises the marketing plan. Again, who knows better what will work (1) the Realtor who has developed an effective program or (2) the loss mitigation negotiator who just took the HAFA training course. The guidelines mandate that the marketing program includes ” a “For Sale” sign, Multiple Listing Service(s), flyers, print ads, open houses as well as appropriate usage of the internet;” Few will argue with a for sale sign and putting it in the MLS, but open houses work less than 2% of the time according to NAR statistics. Print ads have dramatically fallen because they are not that effective. However, if you want to comply with the Short Sale Agreement you will do these things, because the agreement can be cancelled if you violate it.

Another problem is that a seller cannot be considered for a Fannie or Freddie HAFA short sale if a foreclosure is pending that could sell the property in 60 days, or if the state laws would allow a foreclosure in the next 60 days. States like Texas can go from a dead start to a full foreclosure in less than 60 days, so does that mean you cannot do a Fannnie or Freddie HAFA short sale in those states?

There are some great benefits. The servicer must respond to an offer within 10 business days. That beats the months of waiting we do now. The servicer must allow at least 45 days to close the sale after approval, with a maximum of 60 days. Also the foreclosure must be postponed during the sale period, which is at least 120 days.

The financial incentives are similar. The seller gets $3,000 in moviing assistance. The servicer gets more under Fannie and Freddie than the Treasury by receiving $2,200 for an approved short sale, as opposed to $1,500 for the Treasury.

So, like everything else in short sales, there is some good news and some bad news. But, at least there is a program that provides some tools that a savy Realtor can use to help a borrower in trouble.

For the complete Fannie Mae guidelines go to http://shortsalesr.us/FannieMaeHAFA.pdf and for the Freddie Mac guidelines go to http://shortsalesr.us/FreddieMacHAFA.pdf

Chose a Trained Agent to Rescue You with a Short Sale

An experienced agent will save you with a sale that relieves all your debt.

Or, You Could Crash and Burn with an Untrained Short Sale Agent

 

Choose only agents who are trained as Short Sale Negotiating Specialists to safely do a short sale.

HAFA Short Sales Explained

On November 30, 2009, the U.S. Treasury issued new guidelines under the Making Home Affordable program to
create the Home Affordable Foreclosure Alternatives Program (HAFA).  Those guideliens were modified March 26, 2010 and the HAFA program went into effect April 5, 2010.   If HAFA  is implemented widely, the Short Sale
process could completely change. The new program will reverse the Short Sale procedure
from the Realtor’s perspective.

Now, the Realtor and the seller take all the risk associated with Short Sales. They hope
the seller will qualify for a Short Sale and they hope they will get a sales price high enough to be acceptable to the lender. They will not find out until they receive an offer, sign the sales contract, submit it to the lender and get it reviewed by a loss mitigation negotiator. If the seller does not qualify or the sales price is not high enough, the Short Sale will not be approved, and all the time, money and effort are wasted.

 With the new program, the seller’s financial qualification for a Short Sale is determined at the beginning of the
process. Also, the lender gets an idea of the market value of the home with an appraisal or Broker’s Price Opinion (BPO). The lender cannot charge the borrower/seller for this evaluation. Then, the lender lets the listing agent and the seller know what they will accept to pay off the loan, i.e. the net proceeds that the lender needs. The lender can express this amount as a specific amount in dollars, a percentage of the market value or as a percentage of the lender’s suggested list price. So, you will know how much you need from the sale of the property for the Short Sale to succeed.
The lender will also review the title to the property. While they are not obligated to do a title search, the lender will use their resources to find all the liens on the property. There are Short Sale listing agents who do not follow my procedure of doing a title search when I list a property, and they get surprised with other debts just before closing. Under HAFA, there should be fewer surprises.
In short, the essential features of the Short Sale are reviewed and approved at the time the listing is taken and all
of this goes into a Short Sale Agreement (SSA). The primary decision to be made after an offer is submitted to the lender is whether the proposed contract gives the lender the money they said they would take as full settlement.
The process creates standardized documents, so all the lenders will use the same forms. My staff will love this, because
every lender currently wants to use their own forms.

Some of the main forms are a Short Sale Agreement (SSA) used in conjunction with listing the property for sale and the Request for Approval of a Short Sale (RASS) used when an offer is submitted. The minimum amount of time allowed to sell a property under the HAFA Short Sale is 120 days, so listing agents have at least 120 days to get an offer. By the way, the lender cannot increase the amount they want to receive from the sale during this period. The Short Sale period may be extended by the lender for up to 12 months, so you have to get an offer within a year at most.

 During the time that the Short Sale Agreement is in effect, the lender can start a foreclosure proceeding
and move it along toward a sale date, but the lender cannot complete a foreclosure. So, all those calls I have to
make to lenders reminding them to postpone the foreclosure sale while they are considering a Short Sale should not be necessary under these regulations.

The guidelines specify that the lender needs to respond to a proposed contract within 10 business days. Many Short
Sale Realtors look in wonder at that short time frame, as they are used to waiting for months. How is that possible? The
primary review to be made after the contract is submitted is whether the amount the bank receives is higher or lower than what they have agreed to accept. Under the current Short Sale review procedure, the loss mitigation negotiator goes through about 70 to 100 pages of Short Sale package, much of which is complicated financial information. Under the new program, the negotiator will look at the HUD-1 for the net proceeds and compare that number to their pre-approved number.

 By the way, the servicer must consider the seller/borrower for a Short Sale under HAFA within 30 days of the seller failing to qualify for a loan modification, failing to comply with a loan modification or requesting that the servicer consider the seller for a Short Sale. So, the time limit for responding to the seller’s request to qualify the seller for a
Short Sale is only 30 days, considerably shorter than many lenders’ time to review a Short Sale application.
Currently, there is a large battle over whether the lender will give the seller/borrower a full release from the entire obligation under the note. When the property was purchased, the borrower signed a note (promise to pay) and
a deed of trust (allows the property to be security for the loan). A Short Sale can close if the lender releases just the
deed of trust that secures the property. However, good real estate agents also want the seller to be fully released from
the entire obligation under the note, so the seller/borrower will not be hounded by collection efforts after the sale. Under the HAFA program, the lenders have to give the seller/borrower a full release from the obligation of the note, and the lenders cannot require the seller to sign a note to make additional payments after the sale closes. This requirement also applies to any mortgage insurer of the loan, so the seller walks away without any further obligation on this debt.

Another battle that rages with current Short Sales revolves around “Commissionectomy,” where the lender tries to
cut the real estate agent’s commission in a short sighted effort to make more money on this one sale (and lose much more money when the agents will not do Short Sales with them again). Under the new program, the amount of the commission is agreed as a part of the Short Sale Agreement. The guidelines prohibit the lender from attempting to cut the commission after that. I enjoy the irony that the regulations say the maximum commission is 6 percent, so the government can fix a uniform commission for real estate agents even though the same government’s Justice Department engaged in extensive litigation against the real estate industry claiming that commissions where price fixing has occurred hurt the consumer.
The biggest battleground with current Short Sales occurs when there is more than one lien on the property. The
property can have multiple mortgages and other secured debts like judgment liens. The lender that is in first position
wants as much money as possible, and does not want the other lenders to get hardly any. The junior lenders want
as much as they can, typically at least 10 percent of the outstanding balance of the debt. The November guidelines provided that the junior lien holders will get an aggregate of $3,000 (with a maximum of 3 percent of the principal balance for any one lien).  That provision was modified March 26, 2010 to double these numbers so that the junior lien holders can get 6% of their outstanding balance, up to a total of $6,000 for all the junior liens.    In other words, if you have a second, third and fourth lien, the total paid to all three was going to be up to $3,000, now it is up to $6,000.   I do not see this provision establishing peace between the lien holders. The junior lien holders may still want to get more money, as $6,000 may not be enough to settle a $100,000 second loan. In other words, the Realtors are still going to have to use the negotiating tools they have learned to get this battle settled.  However, citing the HAFA regulations as a higher authority to convince a junior lien holder that $6,000 is reasonable will give real estate agents another tool in their tool box. If you want to learn negotiating tools for Short Sales, go to www.ShortSaleNegotiatingSpecialist.com  .

There are financial benefits to the seller and the lender under the HAFA program. If the lender completes the Short
Sale, the loan servicer was going to receive $1,000 from the Treasury under the November guidelines.  That amount has been increased by the March revison to $1,500. This helps a great deal with the servicer’s  cost of processing the short sale, and may allow the servicer to outsource the short sale to a firm like Stewart Lender Services with the $1,500 covering most, or all, of the cost.  If the first lien holder allows the second lien holder to receive $6,000, the Treasury will pay the investor who owns the note up to an additional $2,000, so this will help with the battle between the first and second lien holders. More specifically, the first lien holder gets one third of the amount allowed to the junior liens, up to a maximum of $2,000 under the terms of the March revision.  The November guidelines originally allowed for only $1,000 using the same formula of one third of the amount paid to the junior lien holders.
Take a moment to consider what this means to lenders with a large portfolio of loans that need modification or Short Sales. For example, Bank of America acquired the Countrywide portfolio that has an abundance of this type of loan. Some of the loss mitigation negotiators tell me that they receive between 500 and 1,000 Short Sale applications per day. If only half of those applications were approved, that is $375,000 to $750,000 per day. In other words, we are
talking about someplace in the range of $19,500,000 per year for a five day work week.  With that kind of income stream, Bank of America may be happy they bought Countrywide. How many loss mitigation negotiators could you hire if you were going to make that kind of money? Also, that money is not coming from a buyer who might change their mind or be unable to pay. It is coming from the Treasury who never runs out of funds. This provision of HAFA may be the most important, as it will allow lenders to staff up to handle the volume of Short Sales and decrease the time for a response.

Other financial incentives allow the seller to receive $3,000 from the sale as a moving allowance under the March revisions.  The November guidelines only allowed $1,500. This will help the seller move to a new location after the sale closes, which helps with the problem that real estate agents have in getting people who have no money to move. These funds might also be available to help negotiate a settlement with junior lien holders, or pay items like homeowners association dues and property taxes that become sticking points in Short Sale negotiations.
By the way, the Short Sale Agreement will specify which closing costs and expenses the lender will allow, so the
listing agent will know whether there will be problems getting certain expenses paid, like back homeowners dues.
The draft HAFA regulations that I reviewed had a number of provisions requiring the seller/borrower to be delinquent in their payments, using language that specified that the borrower is in default on the obligations of the note. I sent many emails objecting to this requirement. American society is built on the idea that those who fulfill their obligations should be rewarded. This requirement punished people who worked hard to be sure they made their mortgage payments, even when they were in financial trouble.  In some situations, there is a reason for requiring that
the seller/borrower be in default. For example, some of the agreements for Mortgage Backed Security (MBS) pools will
not allow a loan to be removed from that pool to start a Short Sale negotiation unless the borrower is delinquent in the
payments. Where this is a requirement, the borrower/seller will have to be made aware that they may have to hurt their credit even more by missing payments in order to qualify for a Short Sale.
For example, I was doing a Short Sale on a condominium in Raleigh, North Carolina where the investor was Fannie
Mae. Cartus, the servicer, would not proceed with the Short Sale until the borrower missed two payments, and then they would process the Short Sale. In other words, there would be many missed payments before the sale closed. I contacted Fannie Mae and the supervisors explained the MBS rule to me and said there were certain exceptions to these rules. My seller/borrower was recently married, just had a new baby, had other financial changes going on in his life where he did not want to harm his credit. With the cooperation of Cartus we were able to miss only one payment while they reviewed the Short Sale in advance of the missed payment. As soon as the payment was missed, the Short Sale was approved and the cash buyer closed the sale a few days later. In other words, it looked like the borrower had not made a payment in anticipation of the closing, something that frequently occurs when a payoff has been ordered by the escrow or closing attorney and making a payment confuses the payoff statement from the lender. Cartus took my suggestion and went out of their way to find a solution that complied with the MBS requirements and caused the least damage to the seller/borrower.
In general, the new HAFA regulations do not have a  blanket requirement that the borrower/seller be in default.
The regulations state that the borrower is delinquent or default is reasonably foreseeable. There are some minor vestiges of that idea that were not taken out, such as a phrase that says the lender may terminate the Short Sale review if the borrower brings the loan payments current. I object to the idea that a borrower could lose the Short Sale by working hard and making the payments. However, the provision is at the discretion of the lender, and I doubt that any lender would stop a Short Sale in process with a financially troubled homeowner just because they made the payments.

Real estate agents will love some of the provisions of these regulations. The property has to be listed with a licensed
agent who regularly sells in the area where the property is located. I believe this leaves out Redfin and similar firms that do not have a presence in the local area. The seller has to keep the property in marketable condition, so I will not
have to be turning on the utilities at some of my Short Sales in my name. The seller has to cooperate in the marketing
effort and respond to requests by the agent and the lender, so no more uncooperative sellers. Also, the Short Sale Agreement must give the buyer at least 45 days to close the sale, so real estate agents will not get an approval after months of waiting that says the buyer has to close in less time than anyone can get financing.
I enjoyed reading the part of the regulations that says the servicers must have adequate staff to comply with the
time limits of HAFA. Telling a borrower that they have the right to a Short Sale within 14 days of a determination on the loan modification, responding to a proposal to do a Short Sale with a Short Sale Agreement in 30 days and reacting to an offer within 10 business days will require major staffing increases by some lenders. The lenders are required to report how they are complying with HAFA to Fannie Mae.   Also, Freddie Mac audits the lenders to enforce its provisions.

Just like in any Short Sale, the transaction must be a good faith, arms-length sale. The seller cannot buy back the house after the sale, so those plans to sell to a cousin and buy it back will not work. In most situations, the seller will not be allowed to rent the home from the new buyer, unless that is allowed by the investor’s guidelines. One additional requirement is that the buyer may not sell the property for 90 days. This will cut off a number of “internet gurus” who tell people they can make fortunes flipping Short Sales. Similarly, the seller cannot receive any of the sale proceeds (other than the $3,000 relocation assistance) and cannot receive any of the commission. So, real estate agents who have been getting Short Sale listings by giving some of their commission to the seller will have problems.
The regulations specify that reporting a Short Sale to the credit bureaus requires a special comment, and the  regulations give an example of reporting the Short Sale as “account paid in full for less than the full balance”. There will be trouble for agents who try to get Short Sale listings by promising that there will be no reporting to the credit bureaus, or that they can avoid any adverse effect on the seller’s credit.
Are these new regulations the Godsend for Short Sale real estate agents? No, there are a large number of Short
Sales that are not covered by HAFA. First, they do not apply to loans owned or guaranteed by Fannie Mae or Freddie
Mac, which is a huge exception to the rules. However, at the National Association of Realtors convention in 2009, Fannie Mae executives announced a pilot program to study new Short Sale procedures that had some provisions that are similar to HAFA.
The November draft of the regulations said HAFA  Short Sales were allowed only on loans that have gone through the Home Affordable Modification Program (HAMP).   That provison was changed in the March revision, as any borrower can request a HAFA short sale.  However, the borrower must meet qualifications that are similar to the HAMP program.  In other words, the loan must be on the borrower’s principal residence, so it does not apply to investment
properties. The regulations also limit HAFA to loans where the outstanding principal balance is $729,750 or less (so that leaves out most luxury properties and many of the loans in states like California).  With the November verions of the regulations, the homeowner must have tried to do a loan modification under the HAMP regulations. So, if
someone just lost their job so that they do not have a prayer of qualifying for a modification, do they have to go through that procedure?  Not under the March revision to the guidelines. 

It does make some sense to couple the HAFA Short Sale with a HAMP modification, because the seller will have furnished the lender with the same financial information. However, some real estate agents may find the difference between modification and Short Sales interesting. When the borrowers are applying for a loan modification, they are trying to show financial strength to convince the lender that they can make the payments if they are modified. When the borrowers are applying for a Short Sale, they are trying to show financial weakness to convince the lender that they cannot make the payments and foreclosure is the other alternative.
The Short Sale Agreement may specify that the borrower/seller must make mortgage payments during the Short Sale period, but those payments cannot exceed 31 percent of the borrower’s gross monthly income. However, it is not mandatory that the agreement have a payment provision, and the forbearance of loan payments is specifically
allowed.

These regulations went into effect April 5, 2010, so lenders who participate in HAMP will have to have their procedures in place and their staff trained by then. If you want an extensive analysis of the HAFA program, I did a 90 minute webinar for the Council of Residential Specialists (CRS) of the National Association of Realtors that you can view by going to http://www.crs.com/Education/287?cid=W027R  . Actually, it was supposed to be 60 mintues to start, CRS said I had so much good information that they stretched it to 90 minutes, and it actually ran close to two hours because the 480 people who signed up for it participated so much at the end of the session that CRS kept it going.

These regulations for the Home Affordable Foreclosure Alternatives program are a huge step in the right direction because they change the process to be more rational. Most of the Short Sale decisions are made at the time the sales process starts. Then, the review is expedited so buyers do not have to wait for months to hear whether they bought a home. Then, there are financial incentives that compensate the servicer, the loan investor and the seller to make the process more financially viable. Finally, there will be no more “Commissionectomy” so Realtors will not be financially prevented from doing Short Sales.

 I hope these ideas spread like wildfire.

Short Sale Gets You Out of Trouble

Is your home underwater?  Do you owe more than it is worth, and you cannot afford the payments?  Don’t let yourself slip further and further into trouble.  This website has an abundance of resourses to help you.  You might want to consider a loan modification to change the payments so you can afford them.  You might look at giving the home to the lender if you only have one loan, using a deed in lieu of foreclosure.  The best answer for many homeowners is a short sale where you sell the home for less than what is owed and your Realtor convinces the lenders to take the net proceeds of the sale.  You do not have to pay off the rest of the loan at the closing if you qualify for a short sale. 

Click the Read First tab at the top of this website and you will get a guide to the choices available to you.  You can avoid foreclosure because there are several better choices.  If you cannot find the answers you need, we will help you personally if you send an email to tim@TimBurrell.com because our mission is to save America, its neighborhoods and our finacial system by helping homeowners avoid foreclosre.

« Previous Page — Next Page »