HAFA Program - New Rules for Short Sales

Many people in the real estate industry and those who have been in the market to buy or sell a home in the past few years have been frustrated by the short sale process. Short sale transactions were often taking several months or, worse yet, not going through at all and resulting in foreclosure.

The federal government recently introduced the Home Affordable Foreclosure Alternatives (HAFA) Program to deal with some of these issues and the program took effect on April 5, 2010.

An important provision of HAFA is that the lender must establish a sales price upfront and share that price with the property owner. This means that a deal will not sit for months only for all of the parties involved to ultimately find out that the price was not approved by the lender. In fact, once an offer is presented to the lender, they have ten days to approve it as long as it matches or exceeds their approved price.

According to the rules of HAFA, settlement must take place within a reasonable amount of time after an offer is accepted, but a lender cannot require a closing earlier than 45 days from the date of the sales contract, unless the seller agrees. Buyers cannot turn around and sell a property within 90 days. The HAFA program provides $3000 for borrower relocation assistance. $1500 is provided for servicers to cover administrative and processing fees.

There are some requirements that the seller will have to meet in order to qualify for the HAFA program. The property must be the seller's principle residence. The sellers have to be delinquent on their mortgage or at least be able to demonstrate a hardship that may result in a future default. Their mortgage had to have originated before January of 2009, and the unpaid balance must not exceed $729,750. Finally, the borrower's monthly mortgage payment has to be at least 31 percent of their gross income.

There are many rules, incentives and requirements involved with the HAFA program and time will only tell how effective the program is, but reform was needed and it is great to see a step in the right direction.