HAFA- Home Affordable Foreclosure Alternatives

As part of the Making Home Affordable plan, President Obama's government administration announced the HAFA short sale program on November 30, 2009 with new incentives for home owners' lenders, and servicers who work through the short sale process. This new program, HAFA, went into effect on April 5, 2010. Not only are monetary incentives given, but the HAFA program limits the response time a bank is allowed and also requires that the lender waives their right to pursue a deficiency judgment.

HAFA is ideal for borrowers who:

• Cannot qualify for a trial loan modification.
• Did not successfully complete the trial loan modification.
• Missed two or more payments consecutively during the trial modification process.
• Request a short sale or deed-in-lieu of foreclosure.

In order to qualify for HAFA, certain requirements must be met:

• HAFA does not apply to FHA or VA loans.
• The property must be the homeowners primary residence.
• This can include certain vacant properties if the homeowner lives 100 miles or more for employment purposes.
• The loan must be the first mortgage on the property.
• The loan must have originated before January 1, 2009.
• The homeowner must be behind in payments or can foresee defaulting.
• The unpaid balance cannot exceed $729,750.
• This amount can be exceeded in some cases for two to four units.
• The borrowers monthly mortgage payment must be more than 31% of their gross income.

HAFA Incentives

HAFA offers incentives to all three parties during a short sale; borrowers, lenders, and other services. Since these benefits rely on the short sale's successful completion, HAFA encourages all parties to cooperate in order to get the transaction done.

• Borrowers receive $3,000 in cash at closing to go towards relocation; the borrower is fully forgiven of the debt, including the deficiency.
• Loan Servicers receive $1,500 after the successful completion of a short sale
• Investors receive a maximum of $2,000 for signing off on payments to second position lien holders. Also, investors receive $1 for every $3 spent to release junior liens; up to 6%with a maximum of $6,000
• The transaction must be considered "arms length", meaning that the borrower may not sell the property to a relative or anyone else they may have a close relationship with.
• Borrowers will not be taxed on the forgiven debt if the amount is less than what was used for acquisition, construction, or rehabilitation of their home.
• If the amount forgiven does exceed this, it could be considered income for tax purposes.
• The buyer may not resell the property for at least 90 days.