HAFA Short Sale Program — a better way of approaching a short sale?

by Joe Salcedo on 12:58 am

Here’s the big question I aim to answer in this post — is the HAFA Short sale program, a better way of approaching a short sale?

For the past two years I have been blessed by working with inquisitive sellers. They study all their options in regards to their situation, which is more often than not, owning a distressed property. Most of them stumbled on this website through my short sale articles and battles with the bank.

Many go as far as calling their banks / lenders, asking them on what they can do and how they should approach this very difficult disposition.

Granted that most of the bank’s “Customer Service” people are still not that educated to give the right and proper advice to every borrower. The HAFA (Home Affordable Foreclosure Alternatives) Program delivers huge improvement in offering the public a somewhat solution to the problem.

Here is a quick overview about this program and I also added a link to their official website:

(which, if I may add, is very hard to find if you depend on Google alone.)

Home Affordable Foreclosure Alternatives Program: Overview

The Home Affordable Foreclosure Alternatives (HAFA) Program provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers who:

    1) Do not qualify for a Trial Period Plan

    2) Do not successfully complete a Trial Period Plan

    3) Miss at least two consecutive payment during a HAMP modification

    4) Request a short sale or DIL.

HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance time frames and standard documentation.


In a short sale,
the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage.

Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer – provided the title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance time frames and standard documentation.

More Information: Foreclosure Alternatives

HAFA Short Sale Program in Joe’s Simple Words:

Here’s my play by play interpretation of all that business jargon…

    1.    Applies only to primary residences.

    2.    The borrower must be in default both HAFA and HAMP.


    Note: the borrower will still do the necessary steps for the HAFA program and must be approved with the program. It is not so clear to me if the denial or default on a HAMP automatically “approves” the borrower of the HAFA or it just makes the borrower eligible to participate


    3.    Borrower must call the bank and ask that he is interested in participating in the HAFA or HAMP program. Home Affordable Modification Program is the Loan Modification process for the borrower who is intending to keep the property at a lower / modified payment.  Click here for more information : Home Affordable Modification Program Overview

    4.    If the borrower has been declined with the HAMP or has defaulted again after getting in the HAMP, He is eligible with the HAFA program.

    Note: the borrower will still do the necessary steps for the HAFA program and must be approved with the program. It is not so clear to me if the denial or default on a HAMP automatically “approves” the borrower of the HAFA or it just makes the borrower eligible to participate but here is the link for their “HANDBOOK”

What is clear to me is that the only borrower that will be eligible for the HAFA program is the one that has been declined of a HAMP or the one that has defaulted of that program and that the borrower still needs to do the necessary application to the HAFA program.

NOTE: Only the borrower can initiate this HAFA application and in the event that they want assistance on their behalf, then a third party authorization will be entertained by the bank but not to start the process but during the process.

Here’s How the HAFA Short Sale Program Works:

The bank will have to see the following…

    1.    Hardship letter explaining the borrowers reasons why they are in default.

    2.    Financial information worksheet showing the borrowers “Income to Debt” ratio in a month to month basis.

    3.    Tax returns for the past two years

    4.    Bank statements for the past two months

    5.    Latest two pay stubs.

    6.    The bank will then order a BPO (Bank Priced Opinion). Fancy way of calling an appraisal but it is by no means an appraisal. Although this could sometimes be done by a licensed “appraiser” it is also done by licensed real estate agents.

    7.    Once the bank gets a hold of the BPO report. They will then put everything together for the investor to look at and then you wait.

    8.    The bank will then issue a “Short Sale Agreement” In this agreement. The following terms will have to be stated.

a. Purchase Price or the Net amount that the bank wants.

b. The payoff to the second lien-holder.

c. The deadline to which they will foreclose if the short sale will not materialize.

d. The amount of closing cost they will pay for including the realtors commission for a successful
transaction.

e. The “Relocation fee” that goes to the seller in the sale goes through.

Advantages:

There are a few advantages of having a HAFA short sale than the non-HAFA short sales. Here are a few:

    1.    Once an offer is in together with the HAFA approval, there is no “Deficiency note” or a “Cash upfront” that is going to be asked from the seller.

    2.    The payoff to the second lien is determined. Most of the banks are participating in the HAFA program and are well aware of their payoffs if they happen to be the junior lien holder on a property.

    3.    The bank letting you know what they want gives you and the buyer a firm ground to stand on unlike the Non-Hafa short sales to where you will have to wait and likely lose the buyer while doing so.

    4.    The seller receives a “Relocation Fee”. I’ve seen an amount to the tune of $3,000.00 to be used for them to look for a new place.

Disadvantages:

The disadvantage I see is when the bank gives a net or purchase price that is way too high for what the market is selling the property for.



The disadvantage I see is when the bank gives a net or purchase price that is way too high for what the market is selling the property for. More often than not, the BPO person had to give a report (I know because I do BPO’s as well) providing at least 3 comparable properties in the past 3 months.

In Reno, Properties decline at an average of 1% a month. That being said, the report the bank gets has depreciated for about 3% less. Again, this is nothing new and I will still advice my clients to go through this process but not most of them are willing to do it because they have been so emotionally battered that all they want to do is move on.

I hope this helped you understand the HAFA Short Sale Program a little bit better =)

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“Joe’s your man if you need someone to trust. Joe Salcedo is a hard working Realtor. Joe is very professional and will go the extra mile.”

– Philip Duane Johncock


“I was laid off from the state in November of 2007 due to major budget cuts. We were no longer able to make our house payments as the job market was just beginning to get worse and worse. My agent in San Jose found Joe Salcedo in Reno for me and told me he has a lot of experience in short sales. He priced our home at a very realistic price in relation to the market values at the time. Joe was very professional and before we knew it we had an offer on our home. In September of 2008 our home closed and the bank forgave the difference. A short sale comes off of your credit in a much, much shorter time than a bank foreclosure. We will be forever grateful for the assistance of Joe Salcedo”

– James and Marsha McGinnis (feel free to call for a reference, Joe has my number)

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