This is an excellent article from the California Association of Realtors:
HAFA Short Sales Fact Sheet
What is HAFA?
HAFA is a government-subsidized “Home Affordable Foreclosure Alternatives” program for distressed homeowners to sell their homes to avoid foreclosure, even if the sales price is not enough to pay off their existing mortgage loans. Under HAFA, a participating lender will pre-approve the terms of a short sale prior to listing using standard forms and specific timeframes. The rules in this Fact Sheet apply only to non-GSE participating lenders.
These Rules Apply Only to Participating Lenders
HAFA is available for mortgages where the lender has entered into a Home Affordable Modification Program participation agreement. There are over 100 such participating lenders. The HAFA rules as explained in this Fact Sheet are NOT applicable for mortgages owned or guaranteed by Fannie Mae or Freddie Mac, or insured by FHA, VA or the Dept. of Agriculture’s Rural Housing Service. Different rules apply to loans by those entities. A list of HAMP participating servicers can be found here.
The eligibility requirements for a HAFA short sale include the following:
Release of Subordinate Liens
Subordinate lien holders will continue to be paid in order of priority. There is no longer a 6% cap with respect of payments to each subordinate lien holder. However the aggregate cap has been raised to $8,500. This cap does not include payment for non-mortgage liens such as mechanics’ liens or HOA assessment liens (SD 12-02). Subordinate lien holder(s) may not require contributions from either the real estate agent or borrower as a condition for releasing its lien and releasing the borrower from personal liability. Any payments to subordinate lien holders must be included on the HUD-1 Settlement Statement.
The government incentives under HAFA may be as follows:
The general standardized procedures for HAFA short sales are as follows:
Step 1: If a borrower who was not previously evaluated for HAMP requests a short sale, the lender must determine basic eligibility.
Step 1: Lender must consider possible HAMP-eligible borrower for HAFA within 30 days of not qualifying for a Trial Period Plan (TPP), not successfully completing a TPP, or being delinquent on a HAMP modification by missing two payments in a row. Lender must then proactively notify borrower of eligibility. Borrower has 14 days after notification to request short sale. Or a borrower may initiate short sale request on his or her own. (But a borrower cannot agree to a SSA and TPP at the same time).
Step 2: Lender has 10 days to acknowledge borrowers request.
Step 3: Lender issues Short Sale Agreement (HAFA SSA) within 45 days of request for short sale.
Step 4: Borrower lists property for sale using a licensed real estate agent.
Step 5: Borrower must sign and return the SSA within 14 calendar days from the SSA Effective Date along with a copy of the listing and various other documents.
Step 6: Borrower and agent market and sell the property.
Step 7: Within three business days following receipt of an executed purchase offer, borrower submits to lender a Request for Approval of Short Sale (RASS).
Step 8: Lender approves RASS within 10 business days.
Step 9: Sale closes escrow.
Note: If the borrower has an executed sales contract and requests the lender/servicer to approve a short sale under HAFA before an SSA as been signed, then the borrower must submit the Alternative RASS form and then the lender determines eligibility.
*See HAFA Short Sale Time Periods.
If a borrower’s financial and hardship information has been verified as part of the HAMP evaluation and the servicer is in possession of a signed Hardship Affidavit or RMA, no additional financial or hardship assessment is required under HAFA. However, in accordance with investor guidelines, the lender/servicer may request updated financial information.
A mortgage loan does not qualify for HAFA unless the mortgage insurer waives any right to collect additional sums (cash or note) from the borrower.
Short Sale Agreement (HAFA SSA)
The Short Sale Agreement (HAFA SSA) will include, among other things, the following:
Tax, Credit, and Other Consequences
A HAFA short sale may have serious tax, credit, financial, legal, and other consequences. Credit reporting for HAFA short sales must be either 13 “paid or closed/zero balance” or 65 “account paid in full/a foreclosure was started” as applicable. A homeowner is strongly encouraged to seek the advice of a qualified professional regarding these consequences.
Real Estate Commissions
The real estate commission that may be paid is the amount indicated in the listing agreement between the borrower and the listing broker, provided that the commission may not exceed 6% of the sales contract price. The lender/servicer may not require, as a condition of approving a short sale, a reduction in the real estate commission below the commission stated in the SSA. . A fee for any contractor retained by lender to assist the listing broker cannot be charged to the borrower or deducted from the real estate commission if paid from sale proceeds.
Lender’s Website Matrix Required
Each lender/servicer must complete and post to its website a matrix that identifies the lenders/servicer’s unique HAFA eligibility criteria and program rules (HAFA Matrix). The Matrix must be consistent with HAFA Policy and any specific investor requirements or prohibitions.
Fact Sheet Reference Information
All of the information in this Fact Sheet is based upon the MHA Handbook (v3.4 from 12/15/2011) and the Supplemental Directives 11-11, 11-12, 12-01, 12-02 and 12-03. These references replace and supersede all previous Supplemental Directives, FAQs, reference guides, handbooks and waivers with regard to the Making Home Affordable Program for non-GSE mortgages. Links to the MHA Handbook and subsequent Supplemental Directives can be found here: https://www.hmpadmin.com/portal/programs/hamp.jsp#1.
Go to http://www.makinghomeaffordable.gov/programs
/exit-gracefully/Pages/hafa.aspx or call 1 (888) 995-4673 to speak with a HUD-approved housing counselor for free. For additional guidance and MHA Handbook, go to https://www.hmpadmin.com/portal/programs/guidance.jsp.
This chart is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.'s legal products and services, please visit www.car.org.