Starting April 5th the federal government will begin offering financial incentives to hasten the short-sale process for eligible homeowners as part of the Home Affordable Foreclosure Alternatives (HAFA) program. Under the new guidelines, lenders and owners are provided incentives that will help them take advantage of either the short-sale process, whereas the borrower and the mortgage lender agree to sell the home for less than the value of the loan; or a deed-in-lieu of foreclosure, whereas the homeowner voluntarily gives the deed of the property back to the lender.

In simpler terms, HAFA is designed to help people quickly sell their homes by giving them pre-approved short sales terms before listing the property for sale. Lenders will seek a BPO or appraisal before the property is listed and then let the homeowner know the price they are willing to accept as a short sale. And, if the owner can bring a buyer with an above asking price offer, the lender must accept it within 10 business days.

Incentives will include fully releasing the homeowner from future liability for the “first” mortgage debt and $1,500 – $3,000 for borrower relocation assistance. Lenders can receive $1,000 to help with their administrative and processing costs and servicers/investors can get up to $1,000 for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate “second” lien holders. Lenders will set monthly mortgage payments during the homes marketing period. The payment cannot exceed 31% of the borrower’s gross monthly income.

To qualify, homeowners must meet the following criteria:

• Your home must be your primary residence and it must have been purchased prior to January 1, 2009.
• The amount of the outstanding “first” mortgage cannot exceed $729,750. (Do not include any outstanding subordinate mortgages).
• You must have been previously considered for other HAMP foreclosure prevention options including loan modification.
• Your monthly payment on your “first” mortgage (including principal, interest, taxes, insurance and homeowner’s association dues) must be more than 31% of your current gross income.
• You will have to provide documentation proving financial hardship.

If you are interested in applying for the HAFA short sale program, you should first determine whether or not you meet the qualifications. If so, you should next decide whether or not you are ready to take on the adverse effects that the program will do to your personal credit. Although the program is not as bad as a foreclosure, it will lower your credit score and will show up on your credit report.

The program is currently set to expire on December 31, 2012. For more detailed information, contact your current “first” mortgage lender.

Tags: mortgages, new laws, real estate, sales