Law Office of ALG & Associates Comments on Changes to HAFA Rules for Approval of Short Sales

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Home Page > Law > Law Office of ALG & Associates Comments on Changes to HAFA Rules for Approval of Short Sales

Law Office of ALG & Associates Comments on Changes to HAFA Rules for Approval of Short Sales

Posted: Mar 01, 2011 |Comments: 0
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On February 1, 2011, new rules for the approval of short sales under the Home Affordable Foreclosure Alternatives program went into effect.  The rule changes include:

·         Monthly Gross Income.  Although borrowers must provide updated financial information, servicers are no longer required to verify borrower’s financial information or to determine if the borrower’s total monthly mortgage payment exceeds 31% of the borrower’s monthly gross income.  Borrower need only provide demonstrable evidence of hardship by signing a hardship affidavit or request for modification and affidavit.

·         Vacant Property.  To be eligible, the property must be or must have recently been the borrower’s principal residence.  A property that is vacant or has been rented to a non-borrower is eligible if the property was owner occupied within 12 months of the date of the short sale agreement and the borrower has not purchased a replacement property.  The borrower no longer has to show that his or her relocation was due to re-employment or transfer of employment.  Similarly, servicers no longer need to verify the number of miles the borrower moved from the property.

·         Release of Subordinate Liens.  Subordinate liens will continue to be paid in order to priority.  The 6% percent on payments to subordinate lienholders has been eliminated.  Servicers now have the discretion to pay subordinate lien holders up to the $6,000 aggregate cap.  Investors remain eligible for incentive reimbursements up to one-third of the cost of releasing the subordinate liens.

·         Response to Request for Approval of Short Sale.  Within 30 days of receipt of an executed sales contract and short sale packet, the servicer must communicate approval or disapproval of the sale or provide a counter offer.

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·         Real Estate Brokerage Commissions.  The real estate commission that may be paid shall be the amount indicated in the listing agreement between the borrower and the listing broker, provided that such commission shall not exceed six percent of the contract sales price. When the servicer has retained a contractor to assist the listing broker with the transaction, the servicer must include a statement in the short sale agreement that any associated vendor fees will not be charged to the borrower or deducted from the real estate commission.   

·         Alternative Deed-in-Lieu Programs.  Deed in lieu agreements between servicers and borrowers that provide an option for the borrower to continue to occupy the property on a rental basis (deed-for-lease) or provide an opportunity for the borrower to repurchase the property at some future time are eligible for financial incentives under HAFA.  At the discretion of the servicer in accordance with investor guidelines, the borrower relocation incentive may be paid either upon the successful closing of the deed in lieu transaction or at a future time when the borrower vacates or repurchases the property.  Conditional deed in lieu agreements that allow a borrower to reinstate the original loan following some period of rental occupancy are not eligible for HAFA incentives unless and until the deed in lieu is final and the borrower no longer has the option of reinstating or modifying the original first mortgage lien. 

·         Borrower Notices.  When a borrower who was not previously evaluated for modification requests a short sale or deed in lieu and the servicer determines that the borrower meets the HAMP eligibility requirements and will be solicited for HAFA, the servicer must notify the borrower verbally or in writing of the availability of HAMP and allow the borrower 14 calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration for HAMP.  This Supplemental Directive clarifies that  this notification may be given simultaneously with the servicer’s consideration of the borrower for HAFA.  

These rule changes are intended to facilitate short sales and decrease the time for approval.  However, in a recent survey by Equi-Trax, 53.6% of persons surveyed indicated that short sales transaction take, on average, 4 to 6 months. 

Law Office of ALG & Associates commented that “these rule changes will greatly speed up the processing time for short sales.”  However, Law Office of ALG & Associates cautioned that “it has never been more important to find an experienced short sale specialist” as the “these rules will only assist knowledgeable practitioners.”  Law Office of ALG & Associates attributes delays in short sale approvals “not only due to lenders but also due to poorly worded and poorly documented short sale requests from inexperienced professionals.”

Looking for a short sale specialist in Los Angeles?  Contact Law Office of ALG & Associates at 888-LAW-3111.

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I was denied a Hamp mod due to NPV caculations. My lender will not explain these terms to me. They said they cannot help me. I need to short sale and get out. Can u please help me
What are tax implications of short sale ?
What are the repercussions of a short sale ?

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law office, alg law office, home affordable foreclosure, financial information, real estate brokage

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We have already signed the escrow papers a week ago, the lender has already made payment 5 days ago and now our real estate agent and escrow is saying they need to FINAL short sale approval from bank of america in order to send it to registar in order to close so we can get our keys!!! The house has been vacant for 3 months so its not like the amount of time for escrow matters. The real estate agent says bank of america has a 72 hour hold before they approve? I have never heard of this? We are already paying mortgage for this place and we cant even get the keys.. does anyone have any advice? we keep getting the close date pushed back farther and farther and we have to be out of our apt in a few days! does anyone know anything that can help us? Thank you
we have approval from bank of america but we are being told that they must approve everything after it goes to escrow again

The listing said subject to bank approval. The seller accepted another offer that was put in (before mine) so the contract went into attorney review. We were told by the listing agent that didn’t mean anything because the bank didn’t approve it so they were still accepting offers. My husband and I put in an offer, the listing agent said our offer was better than the first one but we still haven’t heard back from the bank, since its a short sale we weren’t expecting to hear back any time soon. I think the listing actually said pre-foreclosure too. (not sure if that’s the same?) Anyhow, I checked the listing today just for the heck of it and it says contract date 2/18/09. Called my realtor, she called the listing agent and they said even though they haven’t heard back from the bank, the first offer that went in was put through attorney review so they said even though the bank didn’t approve anything they said it was nj law that they had to list it as under contract. That sounds bizarre to me. The listing agent said that doesn’t mean the other party got the house and said again that our offer was better and it was up to the bank to decide. Does that sound correct? I want to note that we got our pre-qual letter from the same bank that the house is defaulted under. And the listing agent said our offer was higher but couldn’t say by how much. Can anyone offer insight?

short sale, the bank approved and was supposed to close escrow 3 weeks ago, the underwriter keeps requesting more bank statements, keep extending closing date

I am in the process os purchasing a short sale home. The seller has accepted my contract . Seller’s lawyer also told me that the bank has approved the contract. I have done an appraisal and inspection. I have paid the earnest money. My loan officer has received the home title last week. All iwas waiting on was a closing date. But I was shocked when my lawyer told me that the bank has not approved the short sale even though the seller’s attorney still insists that the bank has approved it.

How do i go about this?

We had our offer accepted on a short sale home from the homeowner, and we know that the home owner’s bank have to approve the short sale, but since we have the “ratified” contract from the home owner are we now able to start the home loan approval process with our loan officer, or do we have to wait for the bank to approve the sale?

Also for the first time home buyers tax credit, I know you have to be under contract by april 30, 2010, so does that mean that we have met that requirement since we are under contract on the home because the home owner ratified the contract? Or does the requirement need the banks approval to be officially undercontract?

Note: The MLS site was updated that the house is under contract.
We ARE prequalified by the way. But of course that is just based on your income and tax credit. I am taking about the full approval aka going to underwriting, etc.

tomorrow. My Real Estate agent is telling me that since we have not gotten an approval from the second bank we must submit a cancellation letter to cancel our contract by today because the house is supposed to close tomorrow. She is concerned that if we do not close tomorrow we might be at risk to lose our earnest money that we put down ($3,000). Does anyone know what my rights are to get that money back. I want to stick with this purchase, and I know that short sales can take months. I am fine with them holding the money, but if the bank does not approve the sale will I get my $3,000 back?
Thanks everyone!
The approval that we are waiting for is from the bank which owns the second mortgage for the current seller. We are not the ones with the second mortgage… we need their approval because they are owed money from that property that they are obviously with a short sale not going to get.
The second mortgage is for $134K. We have asked the bank to tell us what they require to sign off. Both agents as well as the lender are willing to contribute part/all of their commisions to cover an amount negotiable with the second bank… the problem is they haven’t even responded.

My husband and I just put in an offer for a house that is a short sale. The seller approved, and today the realtor sent the paperwork to Countrywide for them to approve it. I heard it can take months for them to respond, but the house already has an appraisal on file at Countrywide and I was told that Countrywide just recently got a short sale “department” to speed up the process. Anyone have any idea or estimate of how long we will be waiting for a response?

How is a contract formed, given that my purchase offer has already expired? If the bank approves, would the seller be making a counteroffer essentially (even if at the same terms as my purchase offer), an offer to sell?

Short sale approval can be a lengthy and complex process. Obtaining approval for short sales must be processed through the lender’s Loss Mitigation Department. There are many steps involved with a trail of paperwork.

When lenders engage in short sale approval transactions they agree to accept a lesser amount than is owed on the mortgage note. Typically, a Loss Mitigator is assigned to the Borrower’s account and reviews their situation to determine if they are eligible for this type of real estate transaction.

Short sale approval eligibility requirements include the following:

1) The Borrower must provide proof their home is worth less than the unpaid balance. Generally, this is accomplished by obtaining comparable home sale prices in the area where the Borrower’s home is located. Comp reports can be obtained through Realtors or by conducting research via the Internet.

2) The Borrower must be default on their mortgage note by a minimum of three months. Additionally, the majority of lenders only consider short sales when the Borrower has no equity in their home. If the Borrower has equity or other financial assets, chances are high the lender will not agree to a short sale approval.

3) The Borrower must provide proof they are facing financial distress due to hardships such as extended unemployment, chronic health problems, bankruptcy, death or divorce.

4) The Borrower has no financial assets they can draw from to maintain mortgage payments.
Before granting a short sale approval, the lender generally offers the Borrower a variety of options such as a Loan Modification or Deed in Lieu of Foreclosure. Some lenders will suggest loan modifications which allow the Borrower to roll over the delinquent mortgage payments to the end of the loan. Other lenders will reduce mortgage payments for an extended period of time.

There are multiple options available to homeowners who want to keep their home out of foreclosure. Each comes with their own set of pros and cons. Therefore, it’s vital to investigate all options and determine the best financial decision for you and your family.

Once the decision has been made to pursue short sale approval, certain elements must be in place. Generally, the lender will require the homeowner to have a Buyer lined up. This is best accomplished by working with a Realtor qualified to handle short sale transactions.

Finally, a short sale package must be provided to the lender. Although requirements vary from lender to lender, most lenders require the following information:

• Detailed financial statement outlining income and expenses
• Short sale hardship letter explaining the events that caused you to become delinquent in mortgage payments
• Current bank and investment statements
• Current year tax return
• Realtor listing agreement
• Signed sales contract
• Estimate settlement statement (HUD-1)
• Proof of buyer’s financing

The short sale approval process is not for the faint of heart. It requires patience, tenacity, organizational skills and multiple phone conversations. However, short sales are far less damaging to your credit and less traumatic than the foreclosure process.

It is highly recommended to thoroughly educate yourself about the short sale approval process and work with qualified individuals who are well-versed in this type of real estate transaction. Short sale experts include Realtors, Real Estate Attorneys, Short Sale Specialists and Private Real Estate Investors.