Monday, January 10, 2011

Changes coming to HAFA short sale guidelines as of February 1, 2011...

Welp, looks like the folks that run the HAFA short sale program (Home Affordable Foreclosure Alternatives) have issued some new and revised guidelines that going into effect as of February 1, 2011. Some highlights to these changes are;

  • The subject property must either be owner occupied, OR it can be vacant for up to 12 months preceding the date of the HAFA Short Sale Agreement if the sellers can provide documentation that the property was their primary residence prior to moving out. Uhh, this is fantastic! There was a lot of confusion before about sellers occupying the home, vs. not occupying the home. Many loan servicers (aka, short sale lenders) argued that the home absolutely had to be currently occupied by the seller. Often times, homeowners in default will move out of the home prior to listing it as a short sale...mainly so that they can move on their own terms (keep the kids in the same school district, remain near public transportation) are not evicted or asked to leave at a later time...or sometimes they are relocating due to a job transfer, to be near a sick relative, or whatever. Under these new rules, as long as a seller can prove they did live in the house during the previous 12 months, they will still qualify for a HAFA short sale (where they may have been rejected before). Proof could be a copy of a utility bill, for example. Unfortunately, investment property still does not qualify for a HAFA short sale - though it will potentially qualify for a non-HAFA short sale.
  • Loan servicers will no longer be restricted as much when paying off second mortgage holders. Loan servicers used to be restricted through the HAFA short sale program to paying second-lien holders no more than 3 percent of outstanding loan balance. It has been increased to 6 percent (with an overall limit of $6,000) in exchange for releasing those "subordinate" liens. When there is a second mortgage, the second generally gets a small payoff to release their lien to allow a transferable title to the new buyer. With any luck this will help to satisfy the second mortgage holders - especially where larger loan amounts are concerned.
  • Loan servicers will have 30 days to send a borrower a HAFA short sale agreement that includes the list price or the acceptable net proceeds amount from a sale. Futhermore, once a purchase contract has been accepted by the seller and submitted to the loan servicer for final approval, the loan servicers then have 30 days to approve or reject the transaction. There were no timeframes imposed on the loan servicers before, so this is a good (ok, great!) thing.
  • Loan servicers may not deduct third party vendor expenses from commissions paid to real estate brokers, nor may they charge sellers. In addition, agents negotiating HAFA short sales may not charge the seller or other parties to the transaction a third party negotiating fee. This is great! Occasionally loan servicers will retain third parties to process paperwork in connection with short sales, and charge an additional fee that is either deducted from the agent commissions or paid by the seller - so now that is not allowed. Also, some short sale listing agents (NOT ME, by the way) hire separate negotiators and pass that cost along to the seller...they are no longer allowed to do that in connection with a HAFA short sale. Good stuff.
So, these changes seem to have good intentions...we shall see how efficiently the loan servicers implement them. Keep in mind that these rules are effective February 1, 2011. The HAFA short sale program does not apply to mortgages owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by a federal agency such as the Federal Housing Administration (FHA).

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