Things You Should Know About HAFA: The Home Affordable Foreclosure Alternatives Program
By Xin Lu 6 comments
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Short Sale On April 5, 2010 a new program called the Home Affordable Foreclosure Alternatives, or HAFA, will further expand the foreclosure prevention efforts of the Obama administration. This program is meant to encourage short sales instead of foreclosures. Here are some details about the program and the issues troubled homeowners should consider before applying.
A short sale is basically a home sale where the lender forgives a part of the loan. For example, an underwater borrower could currently have a mortgage debt of $300,000, but the house is only worth $200,000. In this case the lender could approve a short sale of $200,000 and forgive the rest of the debt. Unfortunately, currently many short sales do not close escrow mostly due to slow approval on the part of the lenders. The purpose of HAFA is to give incentives to sellers, lenders, and investors to complete short sales.
To qualify for HAFA borrowers must meet the following requirements:
- The loan has to be a first lien mortgage originated on or before January 1, 2009. This means homes with second mortgages will not qualify since there is a second lender in the mix.
- The house in question must be the borrower's primary residence.
- The mortgage payments have to be more than 31% of the borrowers' incomes.
- The home also has to be listed by a broker, and not by the seller.
- The mortgage is delinquent and headed to default.
- The current unpaid balance on the mortgage has to be less than $729,750
The cash incentives under HAFA is that the seller gets $1,500 in moving expenses, and the lenders approving the short sale would get $1,000.
Before attempting any short sale, homeowners should check the tax consequences because the forgiven debt may count as ordinary income and end up being taxed. Usually after a short sale the lender will send the seller a 1099 at the end of the year showing the amount of debt that was forgiven. Currently in California those who got rid of their homes in short sales in 2009 are on the hook for huge tax bills because California's income tax law treats the forgiven debt as ordinary income. The IRS currently has an federal tax exemption on the forgiven debt due to the Mortgage Forgiveness Debt Relief Act of 2007, but this exemption is temporary and expires in 2012. The federal tax exemption only applies to debt used to purchase or improve a primary residence, so those who used cashed out their equity and bought other things would not qualify.
Besides the issue of taxes, if you read the terms of HAFA more carefully you will see that the lender has the option to determine whether or not a short sale or deed in lieu of foreclosure is in the best interest of the lender. A deed in lieu of foreclosure is essentially a voluntary foreclosure and the lenders would save quite a bit of money if you agree to one since they do not have to go through the entire judicial process of a full foreclosure. If you participate in HAFA you actually agree to a deed in lieu of foreclosure if the short sale fails. The seller has to make payments during the short sale process during HAFA or the lender can immediately take the home via the deed in lieu clause. The HAFA agreement also says that the lender or investor must give at least 120 days for the sale, but if the home does not sell within 120 days the lender could just take the home via the deed in lieu of foreclosure.
Will this program spawn a lot more short sales? Personally I think the terms of the program are ultimately not in the interest of the sellers. If you want to pursue a short sale it is probably best to start negotiating with your lender right now outside of HAFA.
What do you think about this program? Have you ever completed a short sale?
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Thank you for such a thorough explanation of a complex program. I feel much better informed.
I actually tried to deed my house back in lieu of forclosure and the bank denied it. They basically said did not have time to do it because they were so busy with other forclosures. They actually suggested that we move and rent our house out so someone else because it is better for a house to be lived in rather than left empty to be vandalized.
I also have several different friends that tried going throught the short sale process or through steps to catch up on their payments. They jumped through the hoops to the 'T', paid extra (around $10,000)and the bank forclosed on them anyways.
The feeling that most people have seems to be that the banks got their bailout money and are now not worried about failing. So now they are finding new ways to screw the average Joe.
I agree; the banks could care less about the average person. We have been trying for over a year to get a loan modification and have just been strung along and not granted any help. This information about this new program to make a short sale easier is confusing. Early in the article it states you need to be behind on your payments and ready to be in default....later it says you have to make payments during the short sale process? If we could afford to make the payments, we would be making the payments.
This government better start doing things that help the regular person instead of big corporations soon or there will be no hope for any of us...rich, average, or poor!
HAFA is a disaster waiting to happen! http://arizonarealestatehome.com/all-real-estate/home-affordable-foreclosure-alternatives-hafa-100-disaster-guarantee
Government intervention will kill the housing recovery.
Obuma Hussein has done absolutely nothing for the little guy. The BANKS got money - OUR MONEY, the car companies got money - OUR MONEY, but when it comes time to help out the little guy, Obuma Hussein would rather spend it on things like fighting the Arizona law which only does what the friggin Federal Government should have been doing all along. Obuma Hussein is a has been that never was, but he is ruining this country. I say we should start IMPEACHMENT PROCEEDINGS IMMEDIATELY!
WE HAVE BEEN TRYING TO WORK WITH A MORTGAGE COMPANY FOR OVER A YEAR NOW, WITH NO HELP AT ALL, WE HAVE SENT ALL THE PAPER WORK THAT WAS REQUESTED AND STILL WASNT GOOD ENOUGH, MY HUSBAND WAS INJURED AT WORK ENDED UP WITH SURGERY, OUT OF WORK FOR A YEAR AND A FEW MONTHS. OUR MORTAGE WAS THEN SOLD TO ANOTHER COMPANY, RSC,, WHICH I ADVISE EVERYONE OUT THERE NOT TO EVER GO TO. THEY ARE NOTHING BUT GREEDY PEOPLE THAT WONT NOTHING TO DO WITH HELPING PEOPLE. THEY ARE NOT INTERESTED IN BACKING PAYMENTS. THEY ARE NOT INTERESTED IN EXTENDING THE LOAN SO PEOPLE CAN STAY IN THEIR HOMES INSTEAD OF IT BEING LEFT ALONE, AND VANDALIZED, ALL THEY ARE INTERESTED IN IS FORCLOSING ON PEOPLES PROPERTY, WE HAVE TRIED EVERYTHING, OUR HOME IS NOW UNDERWATER BY 70,000 SO NO OTHER BANK IS GOING TO WANT TO HELP. SO WERE ARE IN THE PROCESS OF FORCLOSURE AND BEING HOMELESS AND LOSING OUR HOME.. THIS COUNTRY IS RIDCULOUS THAT THEY ARE WILLING TO HELP THE RICH IN EVERY WAY THEY CAN AND NOT GIVE TO HOOTS ABOUT THE LOWER PEOPE THAT WANT TO KEEP THEIR HOME THEY WOULD RATHER HAVE IT SIT UN LIVED IN. THEN HELP....... THEY SAY PROGRAMS ARE OUT THERE BUT NOT ONE OF THEM IS HELPING US!!!!!!!!!!!!!!!!!!!!!!!