The Home Affordable Foreclosure Alternatives (HAFA) program sounded like it had a lot of potential when it was first announced. HAFA provides financial incentives to both borrowers and loan servicers in connection with a short sale or a deed-in-lieu of foreclosure (DIL). The program allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds). This means that before you even list your home for sale, you have a bank approved price. Fantastic! The program requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed). Also fantastic! The program isn’t working though.
Last year I was contacted by a homeowner who had received approval to do a HAFA short sale. It took him one year to get approval. First they told him he made too much money to qualify. (Really? He was seriously struggling to make his mortgage payments and stay on top of other obligations but he made too much money?) He tried again a couple of months later and was told he didn’t make enough money. (He had just been laid off and wasn’t bringing in any income. Again, really? He knows he doesn’t make enough money, that’s why he contacted you!) Finally, third times a charm, he was approved because he made just the right amount. Reminds me of the three little bears.
The approved sales price was $168,000. I’m convinced they only did a drive-by BPO when they determined the value. Had anyone stepped one foot in the door they would immediately have known that we would never find a buyer willing to pay $168,000. We put the house on the market at $168,000 and had 4 months to sell it. I heard the same feedback over and over. It’s overpriced, it needs too much work, my clients don’t want a fixer, etc. I sent new comps to the lender only to be ignored. With a foreclosure date quickly approaching, we made the decision to reduce the price to $149,000. Within one week we had an offer of $129,000. I submitted the offer along with new comps that justified the purchase price and the offer was immediately rejected with no explanation. I eventually learned that for the first 120 days of a HAFA short sale, the lender will only accept offers at the “approved” price. It didn’t matter how many times or how many different ways I explained to them that we would never find a buyer willing to pay $168,000 they weren’t willing to budge or agree to a price reduction. By the time the offer was rejected, we were nearing the end of that 120 day period and dangerously close to the foreclosure date. The only options were to roll the dice and resubmit the offer as a traditional short sale and hope that we could get the sale postponed in time, or the borrower could try for a HAFA deed-in-lieu (DIL). In fact, a HAFA short sale automatically rolls over into a HAFA DIL if it’s not successful. The borrower chose the HAFA DIL because it seemed like the most likely way to get the sale date postponed. There’s no guarantee the DIL will get approved, but at least the sale was postponed while the bank considered it. The borrower still does not have resolution.
I will likely never list another HAFA approved short sale and I can’t even suggest it to seller clients. It was the most frustrating short sale experience I’ve had. I have yet to talk to a real estate agent that has had a positive experience. Had my client just listed his home for sale at market value, I believe it would have been much more likely that we would have gotten the short sale approved and the transaction would have closed. I’ve been very successful at getting deficiency rights waived so the only HAFA perk he would have missed out on would be the $3000 incentive.
The other HAFA option is to list your home for sale, receive an offer, and then submit the offer to your lender and request a HAFA short sale. This is know as the Alternative Request for Approval of Short Sale (ARASS). This seems to be the route that more frequently leads to success. I planned to try this option with a recently ratified short sale agreement but I just learned that if Freddie Mac is the investor on the loan, you are ineligible for HAFA if you have already accepted an offer. Your only option is a traditional short sale. If your loan is backed by Freddie Mac, you have to either get approved for HAFA before listing your home or do a traditional short sale. I could do an entire post on the intricacies of Fannie and Freddie HAFA short sales. In fact, I probably will.