The HAFA program is the government’s new short sale program. The government created the program in an effort to assist homeowners who can no longer afford their home and who want to avoid the damage a foreclosure does to a borrower’s credit. The following is my understanding of the program guidelines as presented in the MAKING AFFORDABLE Supplemental directive 09-09.
The federal government has asked lenders to voluntarily implement a new program called Housing Affordable Foreclosure Alternative (HAFA.) The start date is April 1, 2010 although it is expected that some lenders will implement the program sooner and as I stated earlier, lender participation is voluntary. The guidelines further state that a lender who participated in the HAMP (Homeowner Affordable Modification Program) will be required to participate in HAFA. Loans in which Fannie or Freddie has an interest in do not qualify. They are working on their own short sale program.

In order to qualify for HAFA, a homeowner must meet the basic eligibility requirements for HAMP. They are:
• The property is the borrower’s primary residence.
• The mortgage loan is the first lien originated before 01/01/09.
• The mortgage is delinquent or default is reasonably foreseeable.
• The current mortgage balance is $729,750.00 or less.
• The borrower’s monthly mortgage payment exceeds 31% of the borrower’s gross income.
• If the borrower has mortgage insurance, the insurer must waive any right to collection from the
borrower.

If a borrower meets the following criteria, the participating servicer must give the borrower the option to enter into the HAFA program:
• The borrower did not qualify for the HAMP trial period.
• The borrower did not successfully complete the HAMP trial period.
• The borrower is delinquent on their HAMP modification.
• The borrower requests a short sale or deed-in-lieu.

The good news for sellers who participate in HAFA:
• The lender is required to forgive any deficiency (no more waiting and wondering if they going pursue the deficiency.)
• The sellers will get $1500.00 at close of escrow.
• Servicers are expected to provide an approval letter 10 days from the date the offer is received (no more waiting for months with no guarantee that the short sale will be approved.)
• The short sale will be pre-approved and the server will provide the listing agent with a pre-approved listing price.
• The server will pay up to 3%, but no more than $3000.00, to junior lien holders.
• If a borrower meets the HAMP qualification requirements listed above, they can participate in HAFA without going through the HAMP program first; as long as their servicer is participating in the program. However, if the borrower hasn’t gone through HAMP first, it will be very difficult for a servicer to get an approval letter to the borrower ten days from the offer submission date, and it will more than likely create delays. During the HAMP program process the borrower’s hardship is evaluated. The servicer becomes very familiar with the homeowner’s situation and all the obstacles that cause short sales to take forever are dealt with. Short sale pre-approval is pretty much determined through the HAMP process, so going through the HAMP program first will help the short sale to move quickly through HAFA.

The good news for buyers:
• The endless waiting for short sale approval will be eliminated. Short sale approval in 10 days or less.
• Lenders must allow at least 45 days for close of escrow.

This program will take all those frustrating unknowns out of the short sale
process.

The HAFA summary states that it is the borrower’s responsibility (with the assistance of their Realtor) to “deliver clear marketable title to the purchaser or investor.” It further says that the servicer can assist the borrower and the listing agent in the negotiations with lien holders, but they are not required to do so. An experienced Short sale agent knows how to negotiate with junior lien holders; however juniors could create problems based on HAFA guidelines.

The program provides $3000.00 for junior lien holders. It also requires that junior lien give up the right to pursue any deficiency. If a junior wants more than $3000.00 and/or is not willing to forgive the deficiency, the borrower will not be able to obtain clear title as required. Multiple junior liens could create a problem. If there is more than 1 junior lien holder, $3000.00 may not be enough to satisfy them all.

Another potential issue is that senior liens are not mentioned in the program guidelines. Property taxes are considered a senior lien and currently lenders will pay past due property taxes in order to attain clear title. Since the HAFA program stipulates that providing clear title is the borrower’s responsibility, one could assume that the borrower will have to pay any past due property taxes, before close of escrow, so clear title can be provided.
definitely
One other important requirement:
• The transaction must be completely arms length. No one involved in the transaction can be related. This includes the Realtors, the buyers and the sellers.

Currently in a short sale transaction the lender does not automatically give up the right to pursue. Large numbers of short sales fail because borrowers are concerned that the lender may pursue the deficiency. The fact that the HAFA program requires that the lender forgives any deficiency is a huge relief for borrowers struggling with their mortgage. Other than the problems that may arise with other lien holders, this program is a major step in the right direction for borrowers who are “under water.” It gives them a real chance at a fresh start. There are so many borrowers out there that are responsible people who find themselves in a night mare they never imagined, this program is an opportunity to move beyond the night mare and begin again. It is also a win for everyone who lives in the neighborhood of the borrower who participates in HAMP. Short sales generally do not bring down the value of the neighborhood as much as an REO does. Overall we see this as a positive solution for a homeowner in a very difficult situation.

US Treasury sets guidance on housing short sales

(Adds financial incentives)

By Al Yoon

NEW YORK,  (Reuters) – The U.S. Treasury on Monday set long-awaited guidance on a plan for mortgage companies to speed “short sales” of homes and other loan modification alternatives to stem a rising tide of foreclosures.

The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed, according to an announcement on the Treasury’s website.

Guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders.

The incentives, first announced in May, expand on the government’s Home Affordable Modification Program, known as HAMP, that has seen limited success in lowering payments for distressed homeowners. The Treasury earlier on Monday stepped up pressure on mortgage companies to make permanent the 650,000 trial modifications they have started. See: [nN30451859].

“While HAMP program guidelines are intended to reach a broad range of at-risk borrowers, it is expected that servicers will encounter situations where they are unable to approve” or offer a modification, the Treasury said in its announcement.

Financial incentives for completing short sales or similar deed-in-lieu transactions — in which the deed is simply transferred to the lender — include a $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to subordinate lien holders, the Treasury said. Borrowers would receive $1,500 in relocation expenses.

Short sales are favored by real estate agents and community groups over foreclosure because they can preserve the borrower’s credit rating and leave the property in better condition than when a homeowner is evicted. While primary lenders typically realize steep losses, their recovery is typically far better than under foreclosure.

But short sales have been frustrating for borrowers and real estate agents, often hung up by negotiations with multiple lien holders and mortgage insurance companies. Real estate agents have complained that sales fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.

Among requirements, mortgage servicers have 10 days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt.

It also prohibits mortgage servicing companies from reducing real estate commissions on the sale, a practice that has dissuaded many agents from taking short sale listings.

In one of the most contentious issues gumming up negotiations between lenders, the guidance caps the aggregate proceeds to subordinate lien holders at $3,000.

Second lien holders in recent months have begun demanding more money from the first lender, seller, buyer or agent in exchange for releasing their claim, agents have said. Because primary lenders would face larger losses in a foreclosure, some subordinate lenders have felt empowered, the agents said.

The largest second-lien holders are Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co and Citigroup Inc.

Second lien holders may proceed with a short sale outside of the Treasury program, if they felt the cap was too low, a Treasury official said in October.

“If there was a short sale program that didn’t recognize the second lien holder position, it could have pretty damaging consequences for the industry,” Sanjiv Das, chief executive officer of CitiMortgage, said in an interview last week.

(Editing by Leslie Adler) ((albert.yoon@thomsonreuters.com; +1 646-223-6347; Reuters Messaging: albert.yoon.reuters.com@reuters.net))

Source:

http://www.reuters.com/article/idUSN3046464720091130?loomia_ow=t0:s0:a49:g43:r1:c1.000000:b29133320:z0

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What is a short sale? A homeowner is considered “short” when they owe an amount on the property that, combined with closing costs and commission, is higher than the current market value.

A short sale occurs when the homeowner’s mortgage company agrees to accept less than the full balance of the loan at closing. This sounds like a very easy definition, but it actually can be an involved and time-consuming process if not handled properly.

There are many myths about short sales that must be addressed. Let’s take a look at a few myths and truths.

Myth: Your lender would rather foreclose than do a short sale.

Truth: It’s just the opposite. The foreclosure process is long and costly for the lender. Some national statistics show that on average a lender will receive 30 percent more from a short sale than a foreclosure.

Myth: I have to be behind in my mortgage payments to do a short sale.

Truth: That may have been the case in the past, but today lenders are looking for a verifiable hardship, monthly cash flow shortage or a pending shortfall. If you are facing any of these situations, call  your lender immediately. Waiting will only limit your options as to what the lender may be able to do to help you.

Myth: There’s not enough time to complete a short sale before my foreclosure.

Truth: A foreclosure is a long process. In many cases a lender will stall the foreclosure process if they know you are trying to sell your house. But, they want to know you are making a real effort to get it sold. They will want proof that it is listed at a reasonable price, and they will most likely want to speak with your Realtor.

Myth: Listing my house as a short sale is an embarrassment.

Truth: There are many Americans that are in the same situation you are. Some estimates show that one out of eight homeowners is in some state of distress with their mortgage. You should be congratulated for admitting you need help and are trying to save your credit.

Myth: Short sales never get approved.

Truth: If you are upfront with your Realtor and give them all the information they need to supply to the lender, a short sale has an excellent chance to be approved. But, you need to stay in contact with your Realtor concerning any changes in your financial situation and your Realtor needs to stay in regular contact with your lender. Short sales do take more time and are more involved than a regular transaction, but if handled properly your short sale will get approved.

Myth: Buyers are not interested in buying short sale properties.

Truth: Buyers are always looking for a good deal. As with any real estate transaction, a home in good condition and properly priced will attract attention. Buyers just need to be aware of the differences between a short sale and a regular transaction.

Myth: I will have to pay back the difference of what the property sells for and how much I owed on the property.

Truth: In most cases, that isn’t the case. You will want to get something in writing from your lender saying that the difference has been forgiven. You will want to seek legal advice and speak with a tax adviser to know the legal and tax consequences.

The final thing to keep in mind is that no two cases or no two lenders are exactly alike in how they will handle a short sale.

A foreclosure is the last thing you want to happen. It will destroy your credit and change your life.

Source:  http://www.htrnews.com/article/20091129/MAN04/911290357

What is a Minnesota Short Sale?

A Minnesota short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.

But to be technical, here’s a more official definition:

• A homeowner is ’short’ when the amount owed on his/her property is higher than current market value.
• A Minnesota short sale occurs when a negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then ’sold short’ of the total value of the mortgage.

For homeowners to qualify for a short sale, they must fall into all of the following circumstances:

• Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
• Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
• Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

Source:  http://www.cdpe.com/what-is-a-short-sale.html

In 2007 Minnesota had over 13,000 filings for foreclosure. This was a 100% increase from 2006 and a whopping 500% increase from 2005. These numbers have gone down since then but the cold hard truth is that there are still nearly 10,000 filings for foreclosure with more being added each day. So why is this happening? Why are Minnesota families being forced to foreclose their home? And, is there any other option?

What Happened? Reasons for Foreclosure in Minnesota

Some of the most common reasons for foreclosure are as follows:

Job loss/ unexpected unemployment – in August 2009, the unemployment rate in Minnesota was at 8.0% which is the same as what it was in April 2009. What this means is that, although the global economic recession appears to be slowing down, jobs are actually not picking up and more and more Minnesotans are finding that their temporary unemployment status is turning permanent.

Sudden illness or medical emergency – another common reason that more people are losing their homes to foreclosure is because they are struggling to overcome an illness or medical emergency and simply cannot pay for the bills. In 2007 there were over 4 million cases of injuries at work that cause problems in the financial sector. If you or the main income earner all of a sudden cannot work, then you could easily fall behind on your payments and end up in trouble with your mortgage.

Divorce / Loss of second income – 1 in every 2 marriages end in divorce and many more people split up every day causing not only a problem in their emotional life but also in their financial life. The reason is because, with a separation also comes a split in income. Furthermore, divorce proceedings can be extremely expensive and thus many people are struggling with even more debt once they have ended their marriage.

Unexpected Home Maintenance – another problem that Minnesota families face is that their home is suddenly damaged. Although most families will have insurance that will cover accidents, there are certain problems that will need your out-of-pocket expenses. The fridge could break; the heating could crack down or the roof could leak. All of a sudden you are spending your monthly paycheck on home repairs instead of on the mortgage.

The Short Sale in Minnesota Option

One of the best options to avoid foreclosure is to opt for a Minnesota short sale. A short sale is a real estate transaction that occurs when the banks agree to take an offer on a house that is less than what you currently owe. They are willing to ignore the additional money you owe and you are able to sell your house without worrying about that dreaded ‘foreclosure’ status on your credit report. If you are having trouble making your mortgage payments, regardless of what the reasons are, you do not have to commit to the foreclosure status. A MN short sale is an option that just might work for you.

One of the biggest parts of the short sale Minnesota transaction process is composing the letter of hardship. This is required piece of documentation that proves that you are in hardship and thus need to short sell your home. You will need to explain your situation so the lending company can understand why they need to consider a short sale for your home. This can be a very hard letter to write. For many, finding the time to sit down and write such a personal letter is hard enough but many will also find it hard to find the right words to express their emotional strain and financial burden. Many are also ashamed to put the words to paper as it makes the situation real. However, writing this letter is the biggest step to a brighter future and, in most cases, the only way you can avoid a foreclosure on your home.

How to Start your MN Short Sale Letter of Hardship

Start your letter with the following formalities:

• Lender Name/ Lender Address/ Lender Fax Number
• Today’s Date
• RE: Hardship Letter – Short Sale for YOUR ADDRESS
• To Whom It May Concern

The Bulk of your Minnesota Short Sale Letter of Hardship

Your short sale letter of hardship does not have to be a novel but it should be a typed page in length outlining the details of your current situation. This will include:

• Where you purchased your home and your financial situation at that point. You will need to include your salary and other incoming income.
• What happened to cause the payments to pile up and for the missed payments? This may include a job loss, unexpected bills or medical payments, a loss of a spouse, a divorce or separation, an increase in interest rates or anything else that has happened to cause financial hardship. You will need to be as honest and detailed as possible when explaining your situation.
• The details of the MN short sale. You will then need to explain that you are now trying to sell your home and ask the lending company to accept your offer as ‘payment in full.’ Let them know that you just “want to move on” with your life.

Conclude your letter by informing the lending company that you are available to answer any questions or provide any more details and include your name, address and contact number at the bottom.

The Importance of a Letter of Hardship in a Minnesota Short Sale

Your letter of hardship is your plea to the lending company on a human level. If your letter is well written and compelling, then it will be a lot easier for the lending company to accept the short sale offer. Many people are not naturally poetic and have trouble finding the right words. That is why it’s important to get the help you need from a qualified short sale agent in Minnesota when composing your letter of hardship.