The purpose of the government sponsored HAFA (Home Affordable Foreclosure Alternative) program is to simplify and streamline the short sale and DIL (Deed-in-lieu) process by providing a standard process flow, minimum performance timeframes and standard documentation.
However, in my recent experience with HAFA, simplify and streamline have been benched and their opposing teammates complicate and inefficient are on the field instead.
Here’s what’s occuring (adapted from an article written by Kevin Kravcak)
1. THE GOOD INTENTION: Servicers, in accordance with investor guidelines, determine if a short sale or DIL (deed in lieu of foreclosure) is in the best interest of the investor, guarantor and/or mortgage insurer.
THE NEGATIVE RESULT: It matters not what is in your sellers best interest but what is in the best interest of the investor/lender/insurance companies.
2. THE GOOD INTENTION: By signing the SSA, you are agreeing not only to a short sale but also to a deed‐in‐lieu of foreclosure if a short sale is not successful.
THE NEGATIVE RESULT: By signing the SSA, you are agreeing not only to a short sale but also to a deed‐in‐lieu of foreclosure if a short sale is not successful… keep reading…
3. THE GOOD INTENTION: You have up to 120 days to sell the property.
THE NEGATIVE RESULT: After the 120 days, the servicer may or may not agree to extend it for up to a year.
4. THE GOOD INTENTION: You can get a preapproved short sale when you list your home, no waiting for an approval.
THE NEGATIVE RESULT: When the seller signs the SSA (HAFA short sale agreement) they are agreeing up front to a DIL (see #2 above). The investor is obligated to accept a DIL in accordance with the terms of the SSA if the term of the SSA expires without resulting in a sale of the property – This means come day 120 the lender can exercise and enforce a DIL because the seller already agreed to it in writing. For those of you who don’t know, a DIL is nothing more than a volunteered foreclosure. It will show on your credit as a foreclosure. This is not a benefit to you but it is to the lender because they get the property back in their possession faster thereby saving them money compared to making them go through a judicial foreclosure process.
5. THE GOOD INTENTION: Servicer Disclaimer – Servicer may provide a disclaimer related to any limitations of the information provided in the matrix as it relates to individual investor or mortgage insurance restrictions or additional program requirements.
THE NEGATIVE RESULT: Lay man’s terms, this means Servicers may amend the terms of the SSA in accordance with investor requirements, or they can do whatever they please, and in most cases they do just that.
6. THE GOOD INTENTION: Your home is appraised up front!
THE NEGATIVE RESULT: The offer price will be dictated by the lender using the 90 day “as-is” BPO value. The servicer does not have to agree to additional valuation methods. Sellers better pray they get an experienced BPO agent because if they over value your property and it does not sell within 120 days because it is overpriced, you’re stuck with a house that won’t sell (price not negotiable) and so you just gave your property to the bank (see DIL #2 and #4 above).
Don’t fret though as there is ONE good thing about HAFA. You can opt out of this program at any time! If the borrower fails to contact the servicer within the timeframe or at any time indicates that he or she is not interested in these options, the servicer has no further obligation to extend a HAFA offer. This means you can elect to perform what is now being referred to as a “proprietary” or “traditional” short sale (or a non HAFA short sale).
If you have help from a qualified experienced short sale professional, they will know all you have to do is put in your short sale package cover letter the words, “THIS IS TO BE A NON HAFA SHORT SALE.” They will also have many ways to help you avoid having a foreclosure on your record, avoid agreeing to a DIL, avoid agreeing to deficiency judgements and avoid signing promissory notes.
Bottom line, HAFA is great for the lender/servicers but not so much for you, the homeowner/seller. This program will be a good fit for very few homeowners, if any at all.