In my previous article, “How Short Is the Short Sale Process?” I described the process of having a short sale approved. In this series of articles, I will be discussing the specific requirements that must be satisfied in order to be approved.
The most common program, Home Affordable Foreclosure Alternatives (HAFA), was designed for borrowers with a documented hardship who do not qualify for a loan modification under the Home Affordable Modification program (HAMP). Under HAFA, not only can the borrower avoid any personal liability and a potential deficiency judgment (see my article “What is a Deficiency Judgment?”), he/she can also receive up to $10,000 for relocation assistance.
Mortgage servicers interested in providing these alternatives may also offer their own “private” short sale programs, in addition to HAFA, but obviously prefer to take advantage of the $2,000 fee offered by HAFA to cover the administrative and processing costs incurred in connection with the short sale approval process.
Qualifications and Restrictions
- The borrower must be a natural person (corporations, partnerships, and other business entities are not allowed).
- The existing mortgage must have been originated prior to January 1, 2009.
- The existing balance must exceed the value of the property but may not exceed $729,750 (unless it’s a multi-family dwelling of 2-4 units).
- The mortgage must be delinquent, or the default must be reasonably foreseeable.
- The borrower must be able to document a bona fide hardship and submit a letter of hardship.
- The sale must be an “arm’s length transaction” between parties. This means the purchaser cannot be related to the borrower by family, marriage, or commercial enterprise; they must be strangers.
- Payments to subordinate lienholders, in an aggregate amount not exceeding $8,500, may be made to in order to obtain satisfactions to enable the seller to convey “free and clear title” to the purchaser.
- Neither the purchaser nor the seller is allowed to receive any funds or commissions for the sale of the property—other than the relocation assistance previously mentioned.
- The homeowner must be fully released by the lender and any mortgage insurer for future liability for the debt. This means there can be no deficiency judgment, notes, or promise to pay the balance.
In addition to the short sale program offered by HAFA, certain government-sponsored entities and agencies, such as Federal National Mortgage Association (Fannie Mae/FNMA), Federal Home Loan Mortgage Corp (Freddie Mac/FHLMC) and Federal Housing Administration (FHA) offer their own programs. If your mortgage is owned by Fannie or Freddie or insured by FHA, you are not eligible for HAFA, but must apply for the program offered by the entity that owns or insures your mortgage.
Peter Roach
Peter T. Roach & Associates, P.C.
