The Home Affordable Foreclosure Alternatives ("HAFA")
program, effective from April 5, 2010 through December 31, 2012,
offers hope for defaulted homeowners facing foreclosure under their
current mortgage. The government-sponsored program allows
homeowners and lenders to side-step the foreclosure process by
entering into a short sale agreement (or giving a deed in lieu of
foreclosure), which provides an appealing alternative avenue for
problem loan workouts.
The main attraction of HAFA, from the homeowner's perspective,
should be that the lender must agree to fully release the homeowner
from any liability or deficiency claim on the loan, which, combined
with the fact that the sale of the home through a short sale has
fewer detrimental effects on a homeowner's credit score than
foreclosure, allows a quicker path to eventual financial recovery.
In addition, HAFA may be attractive to homeowners since it offers
up to $3,000 in relocation expenses after the sale of the property.
The HAFA program establishes a pre-approved set of short sale terms
prior to listing the property on the market and uses a standard set
of documents and processes, which can be a refreshing change
compared to the uncertainty that many homeowners experience during
foreclosure.
Lenders may find HAFA enticing as well. As part of the process for
determining the pre-approved short sale terms, the lender may set a
minimum acceptable sales price for the property and earn a higher
rate of return on such sale than might be obtained through
foreclosure. Lenders and servicers will receive $1,500 to offset
administrative and servicing costs of the program. If a homeowner
is accepted into HAFA, he must execute a deed in lieu of
foreclosure in favor of the lender at the start of the process,
giving the lender some comfort and assurance that the problem loan
will ultimately be resolved if a short sale is not
consummated.
In exchange for these benefits to both homeowner and lender, there
are some stringent requirements and limitations under the HAFA
program. As an essential condition precedent to HAFA eligibility,
the homeowner must already have qualified for the Home Affordable
Modification Program ("HAMP") and either have been
unsuccessful during the modification process or have decided that
he is unable to keep the home. The property must be owner-occupied
and cannot be re-sold for 90 days after purchase through a short
sale, which may discourage investors from participating. Further,
HAFA offers a maximum of $6,000 to extinguish junior liens. A
property with multiple liens likely will not be an ideal candidate
for the program, since junior lien creditors may be unwilling to
consent to such a minimal payoff.
The HAFA program creates an outlet for frustrated homeowners and
lenders seeking to avoid foreclosure but hoping to find a
streamlined, predictable exit strategy for a defaulted mortgage.
For an owner-occupied property with only one mortgage that already
has been approved for modification under HAMP, the HAFA program may
be the most viable and successful option for all parties involved.
For more information, please feel free to contact a member of the
Williams Mullen Financial Services team, and look for our article
next quarter discussing the pros and cons of foreclosure versus
deeds in lieu
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
