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

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.

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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