In April 2010, the Home Affordable Foreclosure Alternatives Program – HAFA – goes into effect. Why?
Short Sales are confusing, haphazard and inconsistent in lender response time and policies.
Some lender turn times are 30 days, others are as long as 90.
Potential buyers often get frustrated and move on to another property.
Homeowners shift back and forth from relief to panic as they see a way out of their housing and credit dilemma and deal with the panic of their lender declining their short sale request.
The HAFA program was developed by Congress to put an end to the unpredictable short sale process by making a standard short sale process for all lenders, home owners and home buyers to follow.
Short Sale Effects on Lenders
Locally in Pennsylvania, a deficiency judgment can be filed for the lender’s loss up to six months after the sale. Lenders can also send a 1099-C to the homeseller for the homeseller to pay taxes on and report their loss in the short sale. Lenders cannot do both. Some lenders ask the seller to sign a new promissory note to facilitate recovery should they decide to pursue collection.
Short Sale Effects on Homeowners
The Mortgage Forgiveness Debt Relief Act of 2007 allows a waiver for this income if the Seller meets the guideline criteria. IRS Form 982 is the work sheet used to apply for the waiver.
The home seller’s credit will take a hit from a short sale, and there is a waiting period for most homesellers who go through a short sale before they are eligible to buy a home again. The waiting time is less than a Foreclosure or Deed in Lieu of. FNMA is 2 years for short sales, ( 4 years after a short sale if less than 20% down, and MI is needed ) 4 years for Deed in Lieu of, and 5 years for a Foreclosure. FHA is now 3 year seasoning whether a Short Sale or Foreclosure.
The Good News About Short Sales?
As earlier mentioned, in April, the Home Affordable Foreclosure Alternatives Program (HAFA ) goes into effect. (it retires in 2012) This Federal initiative establishes uniform standards for all lenders. HAFA lays out the timetables, forms to be used, and expectations for the lenders, sellers and buyers. Provisions of HAFA prevent lenders from pursuing deficiency awards. Additional HAFA benefits include relocation incentives, standardized realtor compensation, and assistance with settling subordinate liens, just to name a few.
HAFA is available for download at: www.ustreas.gov & www.realtor.org
I am weighing in as a fan of short sales. The sale prices accurately reflect the market for the neighbor hood, and place a new homeowner onto the tax rolls while the property is in good condition. If HAFA can streamline this cumbersome process, then we have a win / win for all involved.
Mortgage commentary offered by William Stouffer – NMLS # 126079. Mr. Stouffer has helped 1000’s of homebuyers and homeowners with their mortgage needs since 1990. If you would like to speak to Mr. Stouffer about a mortgage loan in Pennsylvania to purchase a home or a refinance of your current home please complete the form below.