HAFA Short Sales
Should I do a Short Sale or Let My Home Foreclose?
If you are behind on your mortgage payment (even one payment), your lender has already started the foreclosure process.
What can you do?
Option 1 - Loan Modification
A loan modification is a change in the loan designed to reduce the payment burden on borrowers faced with impending interest rate increases that will make their monthly payments unaffordable.
Under HAMP (Home Affordable Modification Program), you can apply with your lender for an adjustment in your interest rate, forebearance (delaying some of your payments or missed payments for a period of time so that you can catch up) or even a principal reduction. The latter, to date, is extremely rare, despite the phony braggings of many loan modification firms.
If your lender rejects your request for a loan modification and you cannot afford to pay your mortgage, your choices are limited.
Option 2 - Short Sale
A short sale occurs when the homeowner's loan exceeds the current value of the property. This usually happens in a housing market in which prices are declining, coupled with increases in the interest rate of the loan(s). It can also occur when a homeowner with equity cashes in equity either by refinancing or taking out a home equity line of credit, but faces a negative equity position when the market price of the home declines.
What are the Benefits of a Short Pay / Short Sale?
1. You can sell your home at a selling price that will attract buyers, possibly even lower than the loan amount.
2. You are relieved from making the steep monthly payments.
3. You can stay in your home until the property is sold (escrow closes).
4. You have no out-of-pocket costs.
5. There is no "Foreclosure" record on your credit report, which will damage your credit significantly more than a short sale.
6. You avoid a public auction of your property (trustee sale) and possibly a court-ordered eviction.
For those whose application through HAMP was rejected by their lender, the Treasury Department unveiled the HAFA program. HAFA is the Home Affordable Foreclosure Alternatives program and it is effective from April 5, 2010 through December 31, 2012.
Eligibility Requirements for a HAFA Short Sale
1. Your unpaid principal balance must be $729,750 or less.
2. Your monthly mortgage exceeds 31% of your gross monthly income.
3. You will receive $3,000 in borrower relocation assistance after you deliver the property in undamaged condition and with clear title.
Important Considerations for a HAFA Short Sale
1. The short sale must be "arms length". You may not sell to a relative or business partner.
2. You must provide detailed proof of your financial hardship in terms of financial documentation. If you provided this documentation in your application for a loan modification, you may use submit these same documents.
3. You must assume responsibility for speaking with your tax advisor to be informed of any potential negative tax consequences of your selling your property short.
4. You must deliver clear and marketable title and deliver the property in undamaged condition.
** Flippers, take note: HAFA sold properties may not be re-sold for a minimum of 90 days after the close of your purchase.
Option 3 - Deed in Lieu of Foreclosure
1. Returns the property to the bank. Also called "keys in mailbox foreclosure".
2. Lenders may pursue you for a deficiency judgment for the difference between what you owed on all of your loans and what your property sold for as an REO (bank owned property).
Call me for a free and confidential consultation.
