The Home Affordable Foreclosure Alternatives (HAFA) program has been extended to December 31, 2013. It was set up by Congress in 2009 to help provide alternatives to homeowners facing foreclosure, and was scheduled to sunset at the end of 2012. It covers two alternatives:
- Short Sale: A home sold for less than the mortgage balance. The lender and homeowner must agree to the arrangement. The lender forgives the homeowner’s debt to the extent of the deficiency.
- Deed-in-Lieu: The homeowner returns the home’s title back to the bank and vacates the property without further obligation.
Either alternative is preferable to a foreclosure, for both the lender (who usually can sell the property for more than if it had been foreclosed) and the borrower (who can keep his or her credit score intact).
HAFA is available for mortgages that are guaranteed by Freddie Mac, Fannie Mae or by a participating mortgage servicer. The extension of the program for another year includes other key changes:
- Although the short sale must be initiated by Dec. 31, 2013, you don’t have to actually close until Sept 30, 2014.
- You no longer have to occupy the short sale property. The one proviso is that the property cannot be secured or owned by a business.
- The provision for the maximum second lien was increased from $6,000 to $8,500.
- The HAFA $3,000 relocation allowance is granted only to the primary resident at the time the short sale agreement is reached. At closing, the resident must vacate the property. If the property was vacant at the time the short sale was executed, then no relocation allowance will be available.
- For the first time, non-borrowers (parents, grandparents, tenants and legal dependents of the borrower) can qualify for the HAFA program if they were living in the property at short sale execution. They must vacate at the close.
Although this new policy went into effect on June 1, 2012, it retroactively applies to all current HAFA short sales. Another factor to consider is that some lenders are offering cash incentives well in excess of $3,000. However, if you participate in the HAFA short sale, you are entitled to the $3,000 allowance only – any additional incentives are paid to the borrower. The borrower is obligated to manage any tenant relocation assistance, which will require documentation such as proof of occupancy. As the leading San Diego short sale realtor, we will be happy to work with you to facilitate your participation (either as a buyer or seller) in a HAFA short sale.