Don't assume that because you've heard of the Home Affordable Foreclosure Alternatives (HAFA) program, that your friends, family and neighbors have too. There has been a lot of speculation as to whether HAFA would be extended. Today, we received confirmation that it has been extended through 2013.
The HAFA program was established in 2009 to help the homeowner avoid foreclosure and move on with their lives without the longstanding negative impact of foreclosure. As always, the first step for any homeowner living under the cloud of an unmanageable mortgage is to talk to their bank to see if a loan modification is possible. If the bank can not approve the loan modification, the homeowner should talk to a Realtor who is a short sale expert; (CDPE designation and has experience selling homes under short sale terms).
Foreclosure and Danger
It is critical for people to understand that a foreclosure posts on an individual's public record and therefore can cripple opportunities for gainful employment, obtaining future credit and potentially buying an affordable home. This negative impact can last for up to seven years. For people who qualify, HAFA is an alternative to foreclosure.
This YouTube Video produced by the National Association of Realtors explains HAFA.
Why you should get involved
Many of us know families, often they are neighbors, who packed their things and left home without saying goodbye and without warning. They didn't do it to be cruel or rude. Likely, they did it because they knew they were going to lose their home and they felt overwhelmed and embarrassed.
This is how the story goes
Eight months ago, your neighbor called their bank to tell them they could no longer afford their mortgage. They've worked very hard all their lives, and have been responsible with their finances, but something changed and now they're facing a hardship.
Maybe they have an adjustable arm that has come due and their mortgage increased to the point that they can no longer afford it. Sometimes your neighbor is still paying the mortgage by going into their savings or 401K. They're trying not to ruin their credit score but they know they'll run out of money soon so they try to start the process of refinancing or a loan modification.
Unfortunately, the house isn't worth what they paid for it (it doesn't appraise) and so they can't refinance. Every week they call the bank and the bank tells them someone will call, but they never do. Each time they call, they get a different person on the phone. They explain their situation again and again but because they've been paying their mortgage, the bank doesn't "care". There are homeowners who haven't paid their mortgage in many months - they're the priority. By the way, your neighbor has no idea, that all this time, they've been talking to the wrong department within the bank. They're going in circles, not making any progress. They feel frustrated, helpless and overwhelmed.
Finally, they don't have any money left to pay their mortgage and since they've already tried for months with the bank, they think it's futile and they leave. They didn't have an advocate and now they have a foreclosure that will be on their record for seven years.
The HAFA Short Sale Update
HAFA Supplemental Directive 12-02, effective June 1, 2012, impacts short sales with loans from non-government-sponsored enterprises in which the homeowner is eligible for the HAFA program.
Key enhancements include:
- Time frame extended: The program has been extended to Dec. 31, 2013. The HAFA short sale or deed in lieu of foreclosure can be initiated up to Dec. 31, 2013; however, the transaction must have a closing date on or before Sept. 30, 2014.
- Eligibility updated: Occupancy requirements for HAFA eligibility have been removed; however, the property can't be owned or secured by a business entity.
- The second lien maximum has been increased from $6,000 to $8,500.
- HAFA relocation assistance of $3,000 will be paid only to the primary resident (borrower or occupant) of the property at time the agreement is executed. The resident must vacate upon closing. Vacant properties are not eligible for HAFA relocation assistance.
- Nonborrowers (tenant, legal dependent, parent or grandparent) can now qualify if occupying the property and must vacate upon closing.
- This policy is effective June 1, 2012, for new HAFA-eligible short sales initiated. It also applies to current HAFA short sales prior to closing.
- Tenants will be eligible only for the $3,000. Any money available from additional incentive payout opportunities must be paid to the borrower. The HUD-1 must reflect the breakdown.
- The borrower will be responsible for requesting and managing the tenant relocation assistance, including submitting required proof of occupancy and other documentation.
For questions and for urgent needs (such as a foreclosure postponement) contact Susan Borrelli, a local short sale specialist at 703-216-2620.