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If you feel that you can no longer afford your home – even with modified payments – but want to avoid some of the negative effects of foreclosure, the new Home Affordable Foreclosure Alternatives (HAFA) initiative offered by Freddie Mac may provide you with the options you need. The program goes into effect August 1, 2010 and expires December 31, 2012.
HAFA, a component of the Obama administration’s Making Homes Affordable Program, strives to help struggling homeowners who do not qualify for or complete a trial period plan or otherwise did not complete a permanent modification through the Home Affordable Modification Program (HAMP), or other foreclosure alternative, transition into more affordable housing and avoid foreclosure. This is done through a streamlined short sale process or a deed-in-lieu – options that can help you avoid the financial and emotional impacts of foreclosure, shorten the waiting period before you can buy a new home, and may result in a better credit history for you than foreclosure.
What is a Short Sale? A short sale occurs when your property is sold at a price lower than the amount you owe on the mortgage, and your lender agrees to the “short” payoff. A short sale becomes an option if you are behind on your mortgage payments, you want or need to leave the property and do not have the funds to pay the difference between the net proceeds from the sale of your home and the mortgage.
What is a Deed-in-Lieu? If you make good-faith efforts to sell your home through a short sale or otherwise, but are unsuccessful, your lender may consider a deed-in-lieu of foreclosure. With this option, you voluntarily transfer the title of your home to your lender. In exchange, the lender releases the mortgage.
What is the difference between a HAFA Short Sale or HAFA Deed-in-Lieu and a “traditional” short sale or deed-on-lieu (also known as a “Freddie Mac Short Pay-off” or a “Freddie Mac Deed-in-Lieu”)? There are several differences between HAFA transactions and traditional short sales and deeds-in-lieu. The most significant benefit to the borrower under HAFA is that once a HAFA Short Sale or Deed-in-Lieu is completed, Freddie Mac will release the borrower from both the mortgage and the debt underlying the mortgage. Under a traditional short sale or deed-in-lieu, the borrower may leave the property, but may still be responsible for the amount owed under the mortgage loan.
How do I get approved for a Freddie Mac HAFA Short Sale or Deed-in-Lieu?
Freddie Mac HAFA Short Sales and HAFA Deeds-in-Lieu are just two of the many options available to help you avoid foreclosure. However, before you can be considered for either, your lender must first evaluate you for all options to keep your home – including HAMP, forbearance, and reinstatement. If these options are not viable, they will then consider you for HAFA, through the following steps:
Working directly with you, your lender will evaluate whether or not you are eligible for a HAFA Short Sale.
If you are ineligible for a HAFA Short Sale, they will then determine if you are eligible for a “Freddie Mac Short Pay-off.” This option is similar to a HAFA Short Sale, however the requirements for eligibility differ slightly and the terms of the sale will be different.
If you do not qualify for either a HAFA Short Sale or a Freddie Mac Short Pay-off, your lender will assess whether or not you qualify for a “Freddie Mac Deed-in-Lieu.”
If you are eligible for a HAFA Short Sale but you are unable to sell your property within the marketing period and you otherwise meet the eligibility criteria, Freddie Mac may accept a HAFA Deed-in-Lieu.
If your lender determines you are eligible for any of these options, they will advise you of next steps. During this time, it is more important than ever that you communicate with your lender through phone and mail and complete all paperwork within the designated time.
Remember that you cannot be charged any administrative fees related to HAFA. You should work only with your lender through this process.
Relocation Assistance Payment
For borrowers who successfully complete either of the options under HAFA, you will be eligible for a payment of $3,000 to assist you with moving expenses.
If you complete a HAFA Short Sale, you will receive $3,000 at settlement.
If you complete a HAFA Deed-in-Lieu, your lender will mail you a check for $3,000 within five business days after you convey the title or vacated the property, whichever is later.
It is important to note that a Freddie Mac Short Pay-off or a Freddie Mac Deed-in-Lieu does not come with the $3,000 relocation assistance payment.
How Can I Qualify for Freddie Mac HAFA?
Freddie Mac is working with their mortgage servicers (your lenders) to offer HAFA options to eligible homeowners with Freddie Mac-owned mortgages. If your mortgage is owned by Freddie Mac, you may be eligible for a HAFA Short Sale or Deed-In-Lieu if:
- Your mortgage is an eligible first-lien mortgage owned, securitized or guaranteed by Freddie Mac originated on or before January 1, 2009;
- Your mortgage is secured by a 1- to 4-unit single-family home, including eligible condominiums and manufactured homes, that is not abandoned, condemned or vacant;
- The property is your primary residence (not a vacation, rental or second home);
- You are more than 60 days delinquent in payment of the mortgage at the time of evaluation and have cash reserves less than the greater of $5,000 or three times their current monthly mortgage payment.
- Your total monthly mortgage payment prior to a loan modification, if any, exceeds 31% of the your gross monthly income;
- You were considered for a HAMP modification or other home retention workout option, but your lender found you to be ineligible or you otherwise did not complete a permanent modification.
- Borrowers may be in foreclosure, in pending litigation involving the mortgage, or in active bankruptcy.
- Borrowers must be able to convey a clear, marketable title to the mortgaged property.
If you meet all of these criteria your lender may request further information to determine whether you are eligible for relief under HAFA. You must provide all additional information and document requested by your lender, if any.
Solicitation Requirements
As part of the general HAFA solicitation requirements, Servicers must consider HAMP-eligible borrowers for HAFA within 30 calendar days after the borrower:
- Is determined by the Servicer not to qualify for a HAMP Trial Period Plan.
- Does not successfully complete a HAMP Trial Period Plan.
- Is delinquent on his or her modified HAMP mortgage by missing at least two consecutive payments.
- Is offered, but refuses, a HAMP Trial Period Plan and any other Freddie Mac home retention solution, and requests a short sale or deed-in-lieu of foreclosure.
HAFA Short Sale Solicitation
Servicers must proactively notify eligible borrowers about the availability of a HAFA Short Sale in writing and allow the borrower 14 calendar days from the date of the notice to respond to the offer.
Borrowers cannot be offered a HAFA Short Sale Agreement if they are in an active HAMP Trial Period Plan, are performing on a HAMP modification, or are being evaluated for a Freddie Mac Short Payoff.
HAFA Deed-in-Lieu Solicitation
A HAFA Deed-in-Lieu may be offered if the home does not sell within the HAFA Short Sale marketing period, and Freddie Mac authorizes the HAFA Deed-in-Lieu.
Incentive Compensation
Servicer Incentive
$2,200 will be paid to the servicer for each successfully completed HAFA Short Sale.
$1,500 will be paid to the servicer for each successfully completed HAFA Deed-in-Lieu.
Borrower Incentives
$3,000 will be paid to the borrower to help with relocation expenses after a completed HAFA Short Sale or HAFA Deed-in-Lieu.
Subordinate Lien Holder Incentives
Six percent of the outstanding unpaid principal balance of each subordinate lien in order of lien priority, with an aggregate total of $6,000 to all lien holders, will be offered in exchange for releasing their liens and satisfying the underlying debts.
Freddie Mac HAFA FAQ’s
I am interested in the options available through HAFA. How do I get started?
If you are behind on your mortgage payments, or believe that you may fall behind soon, the first step is to contact your lender. You cannot be considered for a HAFA Short Sale or a HAFA Deed-in-Lieu until your lender has determined that you meet the basic eligibility criteria for the Home Affordable Modification Program (HAMP). You must also consider other home retention alternatives, such as loan modification, forbearance plans and reinstatement plans. If you and your lender determine that none of these options are viable, they may then consider you for HAFA.
I would like to pursue a HAFA Deed-in-Lieu instead of a HAFA Short Sale. Why do I need to market and attempt to sell my home through a HAFA Short Sale first?
HAFA Short Sale allows you to transition to more affordable housing while, at the same time, making homeownership available to a new buyer. A HAFA Short Sale also generally results in lower losses for your lender and, ultimately, taxpayers. Therefore, you must enter into a Short Sale Agreement (SSA) and market the property using a qualified real estate broker for at least 120 days before you can be considered for a HAFA Deed-in-Lieu.
My lender is currently evaluating whether or not I am eligible for a HAMP trial period. However, I just heard about HAFA, and I’d like to pursue this option instead. Is this possible?
Your lender is required to determine if you are eligible for a HAMP trial period or other modification option before considering you for a HAFA Short Sale. If your lender determines you are not eligible for either modification, tell your lender that you would like to be considered for a HAFA Short Sale.
I am currently in a trial period for HAMP, but have decided that I do not want to keep my home and would rather move forward with a HAFA Short Sale. Can I do this?
If you are currently active in a HAMP trial period or permanent HAMP modification, you are not eligible for a HAFA Short Sale. You need to contact your lender as soon as possible, tell them about your situation, and ask them to consider you for other foreclosure alternatives.
I am currently working on a short sale (also referred to as a “Freddie Mac Short Pay-off” when the loan is owned by Freddie Mac) with my lender and I just learned about HAFA. Am I automatically eligible for a HAFA Short Sale?
No. If your lender is currently evaluating you for a short sale or you have already been approved for a short sale, you are not eligible for a HAFA Short Sale.
I am in foreclosure, but I heard about HAFA and would like to participate in this program. Can I participate?
If you meet the basic qualification criteria for HAMP, your lender will determine if you are eligible for other alternatives to foreclosure before they complete a foreclosure sale of your home. These foreclosure prevention options can include HAMP, other modification options, short sale, deed-in-lieu, HAFA Short Sale, or HAFA Deed-in-Lieu. If you did not qualify for any of these solutions, your lender will complete your foreclosure.
Am I required to pay any administrative fees for a HAFA Short Sale or HAFA Deed-in-Lieu?
No. Your lender cannot charge you any administrative fees related to HAFA. If someone who requests a fee for assistance with HAFA approaches you, you should report this immediately!
I was approved for a short sale, but I already closed on the sale. Am I eligible for the $3,000 relocation assistance payment offered through HAFA?
No. The relocation assistance payment is only offered to borrowers who successfully complete a HAFA Short Sale or HAFA Deed-in-Lieu. Because your short sale does not fall under the HAFA initiative, you will not receive this payment.
At what point in the process will I receive $3,000 for relocation assistance?
If you successfully complete a HAFA Short Sale, you will receive $3,000 at settlement and the amount will appear on your HUD-1 Settlement Statement. If you received a HAFA Deed-in-Lieu, your lender will mail you a check within five business days of when you executed the deed conveying the title or vacated and delivered the keys to your lender, whichever is later. It is imperative that you leave the property empty, clean, and in good condition to be eligible for the relocation assistance.
Do I need to provide proof that I used the $3,000 for moving expenses?
No. The monetary incentive you receive through HAFA is designed to help you with relocation expenses as you and your family transition into more affordable housing.
My lender informed me that I was eligible for a HAFA Short Sale. How do I begin the HAFA Short Sale process?
Your lender will send you a Short Sale Agreement (SSA), Form 1135, and you and your real estate broker must sign and return the form within 14 calendar days of its effective date. In addition, you must include a copy of the real estate broker listing agreement and information regarding any subordinate liens.
It is important to note that if you agree to a HAFA Short Sale by signing and returning the SSA, you are agreeing to:
- Provide all information and sign documents required to verify HAFA eligibility
- Cooperate with the listing broker to actively market your home and respond to lender inquiries
- Maintain the interior and exterior of your home in a manner that facilitates marketability
- Work to clear any liens or other impediments to the title that would prevent conveyance of a clear, marketable title to your home
- Pay the monthly amount stipulated in the SSA
I have been marketing my home for sale under the HAFA Short Sale option and received an offer. Now what do I do?
When you receive an offer from a buyer, you will need to send a completed Request for Approval of Short Sale (RASS), Form 1136, to your lender along with the following:
- Executed sales contract, including all addenda
- Buyer’s documentation of funds or buyer’s pre-approval or commitment letter on letterhead from a lender
- Copies of all documentation indicating that subordinate lien holders have agreed to release their liens and the borrower from liability
- Preliminary HUD-1 Settlement Statement
Your real estate agent should help you complete and send the RASS. Once your lender has received your RASS and corresponding documentation, they will respond to you within 10 business days.
My lender informed me that I have been authorized for a HAFA Deed-in-Lieu. What do I need to do to successfully complete the deed-in-lieu?
Your Servicer will send you a Deed-in-Lieu Agreement (DIL Agreement), Form 1139, for you to review. If you agree with the terms, you must sign and return it to your lender within 14 calendar days of the date of the agreement. It is important to note that by signing and returning the DIL Agreement, you are agreeing to:
- Convey a clear, marketable title to Freddie Mac
- Make monthly mortgage payments in the amount set forth in the agreement
- Vacate the property by the specified date in the agreement
What is an SFR?
The complex details involved with short sales and foreclosures are unique calls for specialized expertise. Contact an agent such as myself that has earned the Short Sale and Foreclosure Resource (SFR) Certification through the National Association of Realtors and who is committed to guiding you through the process, setting realistic expectations, and helping you make the right decision to avoid foreclosure.
If you are in a situation where your home is “underwater” due to falling home prices, you are unable to make your current mortgage payments and you are considering pursuing options such as a short sale, deed in lieu of foreclosure, strategic default or even foreclosure, there could be drawbacks that I, as a real estate agent, cannot advise you on. For your protection, I suggest that all homeowners:
- Obtain legal advice from a competent real estate lawyer regarding deficiency judgments
- Call an accountant or CPA to discuss short sale and foreclosure tax ramifications
Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale or foreclosure will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.
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