We’re not out of foreclosure trouble yet, but the government’s new Short Sale program should give some California homeowners renewed hope. With the help of the federal Treasury Department’s Home Affordable Foreclosure Alternative (HAFA) Program, Short Sales are becoming a little easier to initiate and complete.

The HAFA program offers financial incentives to both the homeowner/borrower and the mortgage lender in exchange for avoiding a foreclosure.

Here are some things you should know about the new HAFA program:

What are the HAFA Provisions?

• Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
• Allows borrowers to receive pre-approved Short Sales terms before listing the property (including the minimum acceptable net proceeds).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents, and timeframes/deadlines.
• Provides the following financial incentives:
  o $3,000 for borrower relocation assistance;
  o $1,500 for servicers to cover administrative and processing costs;
  o Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
• Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

You can find more information here: http://www.makinghomeaffordable.com/contact_servicer.html

How do you initiate your Short Sale in California?

If you’ve missed mortgage payments, or anticipate missing them in the near future, your first step should be a call to a Short Sale real estate brokerage. We’ll help you go over your mortgage and income, review your situation and try to see what we can do. If we think a Short Sale is the best course of action, we’ll put you in touch with an attorney and help you list and sell your home.

How do you request a Short Sale in California if you already have a buyer?

If you’ve already listed your home and you receive an offer that’s less than what you owe, but close to market value, you can submit the offer with a short sale package to the mortgage lender. A short sale real estate broker can help you assemble and submit the package according to the lender’s requirements and make the most convincing case for a short sale.

Are you eligible for the new federal program’s Short Sale option?

In order to be eligible for the new program, your property must be your primary residence, the loan must have originated before 2009 and the unpaid principle balance for a single unit has to be no more than $729,750. Your monthly mortgage payment must be more than 31% of your gross monthly income, and you need to prove that you can’t afford to keep your home due to financial hardship.

What are your responsibilities once you sign the HAFA Short Sale agreement?

If you qualify, you’ll be notified by mail within 30 days, and you’ll have 14 days to respond.

Once you sign a HAFA short sale agreement, the lender will request a pre-sale assessment in which the lender determines the home’s list price, or the minimum amount it will accept after sales costs. Working with your Short Sale real estate agent, you need to list and sell the home at the approved price. To speed up the process, you’ll need to maintain its condition and be cooperative about showing it.

How long do you have to wait for Short Sale approval in California?

If you follow the Short Sale procedure and submit a fully executed sales contract at the approved price, along with all required documents, the turnaround time for a short sale approval or denial is only 10 days.

And once the Short Sale closes, you’ll have no further responsibility for repaying the mortgage – this would not necessarily be true for Short Sales conducted outside of the HAFA program. You also will receive $3,000 toward relocation expenses. Contact an accountant to find out how this affect your taxes.

How will a Short Sale it affect your credit?

This is the big question. And you can find the answer here.

If you have more questions about Short Sales, contact me today.

One Less Foreclosure.

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