HAFA Short Sales Latest Revisions
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