Quote: “This Supplemental Directive provides guidance to servicers for adoption and implementation of the Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of HAMP and provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu to avoid a foreclosure on an eligible loan under HAMP.”
November 30, 2009 the Obama White House released their “Introduction of Home Affordable Foreclosure Alternatives – Short Sale and Deed-in-Lieu of Foreclosure. Unlike much of Congress, I have read this document and want to highlight some features for you that you will want to be aware of.
First, you can read the document for yourself by following this link, https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf which was provided by Tere Rice, a member of REOPro.
These guidelines are a part of HAMP, the governments Home Affordable Modification Program and for servicers who participate in HAMP this directive does “require participating servicers to consider borrowers for other foreclosure prevention options, including Short Sale…” In essence, we now have a White House Directive to banks and servicers to use Short Sales as a tool to prevent foreclosure. You would think this was a no brainer however, now with this directive comes objectives and benchmarks.
One of these benchmarks / objectives / procedures is, “The servicer accepts the short payoff in full satisfaction of the total amount due on the first mortgage” In other words, no deficiency judgments on first mortgages. The directive goes further and says, “With either the HAFA short sale or DIL (Deed-in-Lieu), the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.”
A second process change is the streamlining of the process. The directive allows utilization of all the borrowers information collected originally for HAMP consideration in conjunction with the Short Sale.
It allows the borrower to receive PRE-APPROVED short sale terms prior to listing the property.
It prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.
Requires the borrower be fully released from any future liability for the debt.
Provides incentives to borrowers, servicers and investors to cooperate as well as uses standard forms and documents.
Now, we do have some requirements here and they are…..
1. Must be principal residence
2. The mortgage loan is a first lien mortgage orginiated on or before 1/1/09.
3. The mortgage is delinquent or default is reasonably foresseable.
4. Current unpaid principal balance is equal to or less than $729,750.00 and the borrowers total monthly payment exceeds 31 % of the borrowers gross income.
5. Lastly, the borrower must have been declined for HAMP or HAFA before Short Sale or DIL will be considered.
Some other interesting things I read was the requirement that servicers notify borrowers that a Short Sale is an option. The servicer will have to independently assess the value of the property at the servicers expense. The home must have clear and marketable title. All decisions must be communicated to the homeowner in writing. It must explain why a short sale can’t be offered and give the homeowner the option to call the bank and discuss why. The servicer is required to provide the Minimum Net Proceeds hence, the Pre-Approval.
The directive does have a lot of time lines requirements….really too many to log here in this blog so, it’s impearative you read this document before you do your next short sale. Some requirements extend all the way to the agent yourself so, you better be aware of how this is going down otherwise, you may find yourself on the wrong side of the directive.
The best part is, “APPROVAL OR DISAPPROVAL OF SALE. Within 10 business days of receipt of the RASS and all required attachments, ther servicer must indicate it’s approval or disapproval of the proposed sale by signing the appropriate section of the RASS and mailing it to the borrower.” If you are wondering what a RASS is, then you better read the directive.
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