In addition to the programs described above, a new national short-sale program that is part of the Making Home Affordable (MHA) Program is available for homeowners who are unable to retain their home. In some cases borrowers may be able to avoid foreclosure by completing a short-sale or a deed-in lieu (DIL) of foreclosure under the new
Home Affordable Foreclosure Alternatives Program (HAFA).
HAFA is an alternative program available to borrowers eligible for Making Home Affordable (MHA).
In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the mortgage. The short sale must be an arm's length transaction with the net sale proceeds (after deductions for reasonable and customary selling costs) being applied to a discounted ("short") mortgage payoff acceptable to the servicer. The servicer accepts the short payoff in full satisfaction of the total amount due on the first mortgage.
In a deed-in-lieu of foreclosure (DIL), the borrower voluntarily transfers ownership of the mortgaged property to the servicer in full satisfaction of the total amount due on the first mortgage. The servicer's willingness to approve and accept a DIL is contingent upon the borrower's ability to provide marketable title, free and clear of mortgages, liens and encumbrances. Generally, servicers require the borrower to make a good faith effort to sell the property through a short sale before agreeing to accept the DIL. However, under circumstances acceptable to the investor, the servicer may accept a DIL without the borrower first attempting to sell the property. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.
Short sales and DILs are complex transactions involving coordination and cooperation among a number of parties including, but not limited to, servicers, appraisers, borrowers (sellers), buyers, real estate brokers and agents, title agencies, and often mortgage insurance companies and subordinate and other lien holders. The HAFA program simplifies and streamlines the use of short sales and DIL options by incorporating the following unique features:
- Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible.
- Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.
- Allows the borrower to receive pre-approved short sale terms prior to the property listing.
- Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.
- Requires that borrowers be fully released from future liability for the debt.
- Uses standard processes, documents and timeframes.
- Provides financial incentives to borrowers, servicers and investors.
- Short Sale Agreements must be executed and returned to the servicer no later than 12/31/2012.
Go to www.Realtor.Org/Shortsales for links FAQs, a summary, and much more information about short sales.