HAFA Short Sale Process Just Changed Again

The US Treasury issued Supplemental Directive 12-02 on March 9, 2012 to revise the Home Affordable Foreclosure Alternatives (HAFA) Short Sale program.   What does that mean for the HAFA Short Sale process?  More sellers will qualify for HAFA and more sales with junior liens will close.

A HAFA short sale applies only to a seller’s principal residence, so investment properties are not allowed.  The Treasury regulations that were first adopted for HAFA required the owner to occupy the home in order to qualify for HAFA. Every rule has an exception, and a HAFA Short Sale was allowed if the owner had moved over 100 miles within the last 90 days to get a job.  Later, this exception was modified to be that the owner was allowed to move within the last 12 months for any reason.  The latest revision says “There are no longer any occupancy requirements for HAFA eligibility.”   The home still needs to be the owners principal residence under Section 121 of the Internal Revenue Code, that requires the owner to live in the property for two years during the five years before the date of the sale.  You have to enjoy the complexity of an IRS rule, right?.   The directive does not discuss whether HAFA still requires that the seller must not have purchased another principal residence in the year before the sale, but I assume that is still applicable

What does this do?  More sellers will qualify for HAFA.  I did a short sale of a townhouse in Raleigh where the seller had moved out and took a new job, but she had not moved over 100 miles.  With the regulations that were in effect at the time, this Raleigh Short Sale did not qualify for HAFA.  With the current regulations, this Raleigh Short Sale would not have been eliminated on this basis.

Second and third loans are called junior lien holders because they are loans recorded against the property after the first loan.  The example that most people know is a Home Equity Line of Credit (HELOC) that is put on the property as a second loan.  The former rules limited the payment to all junior lien holders to $6,000.  Now, the regulations increase the amount allowed for these lien holders to $8,500.  This is the total allowed for the sum of the payments to all of the junior liens.  So, if you have a Cary Short Sale with a first, second and third loan, the total that can be paid to remove the second and third liens from the Cary Short Sale property is $8,500.

Do you agree that governmental regulations are sometimes odd?  The structure of HAFA qualifies for humorous.  HAFA is a program to allow Short Sales of the first loan on the property.  This HAFA policy restricts what can be done with second loans.  The lenders who own second loans do not have to follow these rules.  This is about the same as expecting the people who are driving in one state to obey the traffic regulations for the next state.  While it may be humorous, this change in the rules will permit the lenders who have first loans to pay more money to the lenders who have second loans.

What does this do?  More HAFA Short Sales will close on homes in the Triangle area of North Carolina because more money means more lenders will accept the proposed offer.  So, if you have an Apex Short Sale with a second lien of $80,000 and a judgment for $5,000, you may be able to get the junior liens to agree to your Short Sale in Apex with an offer of $8,000 to the second loan and $500 to the judgment because most junior lien holders will settle for 10% of the amount owed.

A HAFA Short Sale seller gets a relocation incentive of $3,000 paid at closing.  How do you get a Wake Forest Short Sale seller who is broke to move out of the house?  Provide some money to pay for the expense of moving  The new amendment to this policy allows the relocation incentive payment only if the borrower or a tenant is living in the property and they are required to move out when the Short Sale closes.   This change in regulations makes sense.  You pay for relocation only if someone has to relocate.   The result is that the lenders who approve the Short Sale will get more money in these situations.

What does this do?  The incentive to do a HAFA Short Sale just became less.  There might be a few Short Sale sellers in the Triangle who were encouraged to do a HAFA short sale by the $3,000.  Those owners of Triangle real estate might make a different decision.

There are less exciting changes to the regulations for monthly payments that allow the borrower to make the full payment during the Short Sale and the there is a change in the reporting of a HAFA Short Sale to the credit reporting bureaus. 

Is this good for Triangle Short Sales? Yes.  More sellers will qualify for HAFA, more sales with junior liens will close and the lenders pay relocation benefits only when someone relocates.

If you want to have a complete understanding of the entire HAFA Short Sale processs from start to finish, look athttp://shortsalesr.us/short-sale-how-to/how-to-hafa-the-process-from-start-to-finish/