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.