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January 11, 2010

Home Affordable Foreclosure Alternatives Program (“HAFA”)

From the California Insolvency Law Committee:

New Federal Program Effective April 10, 2010 to Streamline and Create Incentives for Short Sale Transactions for Lenders and Borrowers through 12/31/12

Summary.  On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (“HAFA”). HAFA is part of the current Home Affordable Modification Program (HAMP). HAFA provides financial incentives to loan servicers and borrowers who utilize a short sale or a deed-in-lieu of foreclosure (DIL) to avoid foreclosure on loans eligible for modification under the HAMP program.  HAFA complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their homes.  Click HERE to view full program details. 

Applicable Lenders.  HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac.  The lender must have executed a HAMP servicer participation agreement.   Participating lenders are listed HERE.

Start Date.  April 5, 2010 (but qualifying servicers may voluntarily implement sooner).

Eligible Homeowners.  The homeowner must meet the HAMP guidelines to qualify for HAFA, which are as follows:  (1) the property is the borrower’s principal residence; (2) the mortgage loan is a first deed of trust originated prior to January 1, 2009; (3) the mortgage is delinquent, or a default is reasonably foreseeable; (4) the current loan balance is less than $729,750, and (5) the borrower’s total monthly mortgage payments exceed 31% of the borrower’s gross income.

Lenders are required to evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options.  Further, every potentially eligible borrower must be considered for HAFA before the borrower’s loan is referred to foreclosure.

Program Benefits.  The HAFA program does the following:

Minimum Net Price.  Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).  The minimum net proceeds may be either a fixed dollar amount or percentage of the current fair market value of the property.  It cannot be increased for 120 days.
No Commission Reduction.  Prohibits lenders or their loan servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
Release of Remaining Loan Balance.  Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
Standardized Documents.   Uses standard processes, documents, and timeframes/deadlines.
Financial Incentives.  Provides the following financial incentives:
$1,500 for borrower relocation assistance;
$1,000 for servicers to cover administrative and processing costs; and
$1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
Procedure.  A borrower may request short sale approval by providing the lender with a Request for Approval of Short Sale form (RASS), a Short Sale Agreement (SSA) and a Hardship Affidavit.  The lender then has 30 days to do the following: (1) evaluate the borrower’s eligibility; (2) determine the current value of the Property; (3) establish the minimum net proceeds; and (4) review the title to evaluate subordinate liens 

Short Sale Agreement.    The lender provides the borrower with a standard form Short Sale Agreement (SSA).  The SSA creates the following obligations and benefits: (1) the borrower must list the home for sale with a licensed real estate agent; (2) the borrower has 120 days to sell the home, but the lender may extend the term; (3) the lender must postpone any pending foreclosure sale during the 120 day term; (4) the borrower must maintain the property in good condition; (5) a new, lower monthly mortgage payment is set, which cannot exceed 31% of the borrower’s monthly income; (6) the borrower must move out at close of escrow, leaving the property in good condition; (7) the borrower cannot sell the property to a family member, friend or business associate; (8) the buyer of the property must agree not to resell it for 90 days after the close of escrow; and (10) the lender has 10 business days to approve a short sale that meets or exceeds the minimum net price.

Deed-in-Lieu.  The lender and borrower may also agree that, if the property does not sell within 120 days, the borrower will execute a deed-in-lieu of foreclosure.  The borrower still  receives a waiver of the loan deficiency and a $1,500 relocation assistance.   All subordinate lenders must also agree to a release of liability for their loan.

End Date.  HAFA sunsets on December 31, 2012.

These materials were written by Mark L. Strombotne, senior partner in the Strombotne law firm in Saratoga, California, and Robert G. Harris, a partner in the Silicon Valley law firm of Binder & Malter, LLP.  Mr. Harris is presently a member of the Insolvency Law Committee.

January 11, 2010 in Legislation | Permalink

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Comments

What happens if the property doesn't sell in 120 days and the borrower and lender have not agree that a deed-in-lieu is acceptable? Back to square one? Or is there opportunity to reset the sale price?

Posted by: Tye Van Buren | Jan 15, 2010 6:24:54 AM

Is there a list of participating lenders

Posted by: Norm Price | Mar 19, 2010 7:13:41 AM

Great post, The Home Affordable Modification Program is an excellent program. My sister received a modification in 14 days from her lender using this program. It’s good that you’re helping to get the word out.

Posted by: Cindy Small | Jun 8, 2010 3:20:13 PM

It seems that HAFA is helping lot of people. My brother tries to get a modification.

Posted by: Ben | Aug 27, 2010 7:05:45 PM

Sounds great,I will try to get a modification as soon as possible.Thanks for sharing this informative post.This kind of program will really help people.

Posted by: home for sale | Oct 4, 2010 5:25:35 PM

We are just now seeing lenders starting to push the HAFA program. I think it's a wonderful program but then it all comes down to the servicing companies understanding the guidelines and implementing them.

Posted by: HAFA | Oct 28, 2010 9:39:39 AM

"Some of the nation's top trial lawyers have banned together and are secretly beating the banks. These are the lawyers who previously represented these very banks; the lawyers who -- for years -- have gone to Court and "ended the madness" for many clients; the lawyers who know their way around the courthouses better than anyone. Already, these lawyers have filed a mass joinder case in 2009 that remains pending against Bank of America (and Countrywide) and includes thousands of Californians. This case is now going national. These lawyers have invoked laws and procedures the banks were previously unaware of, and Bank of America is getting beat at their own game because of it. Two weeks ago, the Bank was forced to admit that it had been defrauding the government in foreclosing on mortgages nationwide. Furthermore, on October 4, 2010, the Honorable Manuel Real of the United States District Court called the Bank's primary argument "absurd" and kicked the Bank out of Federal Court. The case is now proceeding in the trial court, and the mass joinder of plaintiffs from around the Country is expanding. It may be that the Bank is unable to recover under any of their promissory notes, or that the Bank has made other errors that will cause other penalties to be levied against them.

Currently pending or contemplated to be file in the Superior Court of California, in the County of Los Angeles are the following cases: Bank of America, GMAC, JP Morgan/Chase, WaMu, Wells Fargo, Wachovia, OneWest Bank, IndyMac, Citibank and other lenders.

This is obviously excellent for homeowners but can also assist attorneys and loan modification companys as they can use the litigation as an escape from the loan mods.

As of 11/08 the attorney's have decided to offer this to the general public, as a result of my relationship with one of the law offices. I have been afforded the opportunity to assist in marketing this program. If you wish information regarding these stunning developments, or should you wish to be considered for involvement in this action, please call Harold Lear 858-945-1047, Client Relationship Manager

FYI: todate- 1 home free and clear and 9 NODs torn up by the court, all foreclosure efforts on B of A homes involved in the suit are suspended.

Posted by: Harold Lear | Nov 30, 2010 12:24:25 PM

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