FAQ - For Homeowners
You may have heard about HAFA on the news or from friends and probably have some questions about what it is, how it works, and how it can save you from the financial ruin brought on by a foreclosure. Here are some answers you may find helpful:
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What does HAFA stand for?
Also known as the "April Program," HAFA stands for Home Affordable Foreclosure Alternatives. It's a brand-new government program that began on April 5, 2010, aimed at streamlining and incentivizing alternatives to foreclosure. Under HAFA, participating banks must work with you to help you avoid foreclosure.
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What are the "Alternatives" in HAFA?
HAFA provides two alternatives that will allow you to avoid foreclosure:
- Short Sale – If you owe more on your home than it is now worth, a short sale will help you sell your home and save yourself from financial ruin. According to HAFA, a real estate agent must be involved in this process. Agents with the CDPE designation are specially trained to help you with a short sale.
- Deed-In-Lieu – This is where the bank accepts the deed of your home instead of ("in-lieu of") foreclosure. You do not get to keep your home, but your mortgage debt is forgiven.
HAFA also provides up to $3,000 in Borrower Relocation Assistance to help you transition beyond a short sale or deed-in-lieu of foreclosure.
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Why should I consider a HAFA short sale?
HAFA sets distinct guidelines and incentives for banks and lending companies so that you will know whether or not you can complete a short sale. One of the common myths about short sales is that they take forever to complete. HAFA makes sure that short sales happen more quickly by streamlining the short sale process.
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How is HAFA different from a short sale?
The main issue with traditional short sales was that they took too long, and it was difficult to keep buyers interested in the process. HAFA is a program designed to speed up the short sale process and even gives banks incentives for each short sale they do. Also, after completing a HAFA short sale, you may be given up to $3,000 in Borrower Relocation Assistance to help you transition. During a non-HAFA short sale, there is no government incentive for banks to help you.
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Do I have to hire a real estate professional for a HAFA short sale?
Yes, but it doesn't cost you anything. Under HAFA, the real estate professional's fees may be deducted from the sale proceeds. It is a requirement of a HAFA short sale that you work with a real estate professional to help you through the process. CDPE-designated agents understand this process, and are located throughout the country.
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How do I get started?
Your first step should be to contact an educated real estate professional in your area. An agent can walk you through the HAFA process, determine your eligibility, and provide you with the best solutions available for your particular circumstances.
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How do I qualify?
Most homeowners facing financial hardship can qualify for HAFA. If you applied for a HAMP Trial Period Plan but did not qualify, or were unable to complete the Trial Period Plan, you are definitely eligible for HAFA.
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What's in it for me?
HAFA is the only program that gives you cash for avoiding foreclosure through a short sale or deed-in-lieu of foreclosure. If you complete a short sale or deed-in-lieu, then up to $3,000 in Borrower Relocation Assistance may be available to aid in your transition. This program seeks to ensure that no one will be left high-and-dry if they cannot afford their home. The biggest gain of HAFA, however, is that it helps you get your life back if you feel like there are no other solutions when faced with foreclosure.
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How long does the process take?
HAFA speeds up the short sale process by putting in place distinct timelines that the banks — and you — must follow. Each step of the process has a defined amount of days in which it must happen. This keeps everyone on track. The longest minimal time expected in the HAFA short sale process is five months. However, the term of the SSA may be extended at the discretion of the servicer up to a total term of 12 months if agreed to by the borrower, in accordance with the requirements of the investor. Servicers can extend HAFA timeframes as necessary to accommodate delays in obtaining court approvals or receiving any periodic payment when they are made to a trustee.
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What is the April Program?
HAFA is commonly referred to as the April Program.
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HAFA Scams
There are many people out there trying to scam homeowners by requesting up-front fees for HAFA short sales. This is fraud. A CDPE-designated agent will never ask you for money. MakingHomeAffordable.gov (MHA) provides the following guidelines:
- Beware of anyone who asks you to pay a fee in exchange for counseling service or modification of a delinquent loan.
- Scam artists often target homeowners who are struggling to meet their mortgage commitment or anxious to sell their homes.
- Beware of people who pressure you to sign papers immediately, or who try to convince you that they can "save" your home if you sign paperwork or transfer over the deed to your house.
- Never make a mortgage payment to anyone other than your mortgage company without their approval.
- Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
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What is a CDPE?
A CDPE, or Certified Distressed Property Expert, is a real estate professional who has undergone specialized training in foreclosure avoidance options, specifically short sales. The education a CDPE receives is based 100% on helping homeowners avoid foreclosure and assisting them through this difficult and oftentimes confusing process.
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What is foreclosure?
If you are in a financial hardship or cannot make payments on your home, the bank can take your home away from you through a foreclosure, which leaves your credit horribly damaged, your security clearance compromised (if applicable), challenges your present and future employment, and you may still owe money to the bank. It's a nightmare situation that has been happening to millions of Americans. HAFA has been created to provide alternatives to foreclosure, and CDPE-designated agents are here to help.
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What are the tax considerations of a HAFA short sale or deed-in-lieu?
The difference between the remaining amount of principal owed and the amount that the servicer receives from the sale must be reported to the Internal Revenue Service (IRS) on Form 1099C, as debt forgiveness. In some cases, debt forgiveness could be taxed as income. The $3,000 Borrower Relocation Assistance may also be reported as income.13 A short sale may have income tax consequences and/or may have a derogatory impact on your credit score. You should contact the IRS or your tax preparer to determine if you may have any tax liability.
In the case of a deed-in-lieu, the difference between the remaining amount of principal you owe and the current market value of the property must be reported to the Internal Revenue Service (IRS) on Form 1099C as debt forgiveness. In some cases, debt forgiveness could be taxed as income. The $3,000 Borrower Relocation Assistance may also be reported as income. You should contact the IRS or your tax preparer to determine if you may have any tax liability.
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Common Short Sale Myths
A short sale can be an excellent solution for homeowners who must sell and owe more on their homes than they are worth. Unfortunately, a number of myths about short sales have developed, and it is important to understand the reality of this process should you find it meets your current needs.
Myth #1 – The Bank Would Rather Foreclose than Bother with a Short Sale
This is one of the most common misconceptions. The reality is that banks do not want to foreclose on your property because the foreclosure process is incredibly costly. Banks, investors, and even the federal government have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure.
The qualifications for a short sale include:
- Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
- Monthly Income Shortfall – “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
- Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.
Myth #2 – You Must Be Behind on Your Mortgage to Negotiate a Short Sale
While this may have previously been the case, today lenders are looking for verifiable hardship, monthly cash flow shortfall, or pending shortfall and insolvency.
If you meet these three requirements and believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options. Do not wait until the countdown clock to foreclosure has started and you have even less time left.
Myth #3 – There is Not Enough Time to Negotiate a Short Sale Before My Foreclosure
This is a myth that probably hurts homeowners the most. Many do not realize that foreclosure is a process, and that there is time to make decisions that may result in better outcomes.
The foreclosing party—in most cases a lender—can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract. For real estate professionals who understand foreclosures and short sales, there is time available until the foreclosure process is complete.
Myth #4 – Listing My Home as a Short Sale is an Embarrassment
It is understandable to have reservations about letting the world know that you owe more on your home than it is worth. However, according to recent estimates, more than one out of eight homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution.
With recent estimates showing 40-60% of U.S. sales will be short sales or foreclosures, you are not alone.
Myth #5 – Short Sales are Impossible and Never Get Approved
This is a complete falsehood. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not.
For example, agents with the Certified Distressed Property Expert® (CDPE) Designation receive thousands of short sale approvals on a monthly basis. These professionals have undergone extensive training in methods to help homeowners in distress and process short sales. While there are no guarantees in any transaction, more and more short sales are being approved regularly. This is far from an impossible process.
Myth #6 – Banks are Waiting on a Bailout and Not Accepting Short Sales
You may have heard this, but the reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. It is preposterous to believe they would deny a short sale in hopes that some future legislation would pass and pay them for losses.
Today, more banks are aggressively pursuing short sales and working with agents who understand how to process them. Freddie Mac recently hosted a national training Webinar for real estate agents where they expressly stated the organizational goal of “eliminating distressed assets through modification or short sale.”
Myth #7 – Buyers are Not Interested in Short Sale Properties
This is a myth that potential sellers hear all the time. Thankfully, this is just not true. In fact, many agents are getting calls from buyers who say they only want to look at foreclosure and short sales.
For buyers, short sales and foreclosures have become synonymous with “good deals.” More specifically, international buyers are targeting these properties. Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.
In conclusion, Agents with the CDPE Designation have been trained in all aspects of the short sale process, and know how to deal with the parties involved in foreclosures. Finding a CDPE can explain what options you have, and get you on the path to recovery.
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Last updated: 2 April 2010
- Making Home Affordable. "Home Affordable Foreclosure Alternatives Program: Overview" (2010): https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html
- Making Home Affordable. Supplemental Directive 09-09 Revised "Incentive Compensation" p. 12 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
- Ibid. p. 13
- Ibid. "General Terms and Conditions" p. 11
- Ibid. "Borrower Fees" p. 12
- Making Home Affordable. Short Sale Agreement (Exhibit A) p. 1 (2010): http://www.hmpadmin.co/portal/docs/hafa/hafaletters_ssagreement.doc
- Making Home Affordable. Supplemental Directive 09-09 Revised "Short Sale Agreement" p. 7 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
- Ibid. "HAFA Consideration" p. 3
- Ibid. "Incentive Compensation" p. 12
- Five months was calculated by adding: 30 days servicer contact time, plus 120 days from the time of signing the Short Sale Agreement to equal 150 days — or five months
- See: Making Home Affordable. Supplemental Directive 09-09 Revised (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf for detailed information
- Ibid. "Short Sale" p. 7
- Ibid. p. 6
- Short Sale Agreement (Exhibit A) "Additional Information" p. 3 (2010): http://www.hmpadmin.co/portal/docs/hafa/hafaletters_ssagreement.doc
- Making Home Affordable.Supplemental Directive 09-09 Revised "Short Sale Agreement" p. 8 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
- Deed-in-Lieu Agreement (Exhibit C) "Terms and Conditions" p. 2 (2010): https://www.hmpadmin.com/portal/docs/hafa/hafaletters_dilagreement.doc
