What is HAFA and what does it mean to you as a homeowner?

The Home Affordable Foreclosure Alternatives program (HAFA) was released on November 30, 2009 by the Obama Administration which goes into effect April 5, 2010 HAFA will help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP) by providing incentives in connection with short sales and deeds-in-lieu (DIL) of foreclosure.

Essentially, the program benefits those who attempted to modify their loans through HAMP, but cannot keep their homes. The program, “allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds). It prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%). The program also, requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note or deficiency judgment is allowed.)” Overall the process has been simplified in that, first, the servicer must notify the buyer within 14 calendar days to respond to the short sale or DIL offer. Second, the bank is required to consider them for a short sale if they do not qualify for a load modification. Next, the borrower has 14 calendar days from the date of the Short Sale Agreement to sign and return to the servicer. Then the SSA must give a borrower up to 120 days to sell the property (extension up to 12 months)within three business days of receiving a purchase offer the borrower must submit a Request for Approval of Short Sale (RASS). After that, within 10 business days after the servicer receives the RASS and all required attachments, they must approve or deny the request and advise the borrower. Finally, the closing may take place no sooner than 45 days after it has been approved by RASS, and the servicer must release its first mortgage lien within 10 business days after the receipt of sales has been processed.

To qualify, the borrower must meet basic eligibility criteria for HAMP. The deal must be “arms length”. The amount forgiven might be treated as income for tax purposes. The servicer will report to the credit reporting agencies that the mortgage was settled for less than the full payment. And buyers may not reconvey the property for 90 days.