How To HAFA: The Process from Start to Finish
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.