The Treasury Department implemented the Home Affordable Modification Program to help borrowers with sustainable monthly payments for their first lien mortgage loans, a loan modification program. Where borrowers fall out of the modification program or is not accepted by the borrower, another program is beginning on April 5, 2010. This program is called the Home Affordable Foreclosure Alternatives - Short Sale and Deed-in-Lieu (DIL) of Foreclosure or HAFA for short.
Under the HAFA program, borrowers not staying in the loan modification program will be able to benefit from this program through a short sale and thus avoiding foreclosure.
By agreeing to the short sale under this program, borrowers must list their house with an agent at market value. Borrowers can receive $3,000 at closing to assist them in relocating once their house has sold.
The process:
If a servicer has not already discussed a short sale or DIL with the borrower, it must notify the borrower in writing of these options and give the borrower 14 calendar days to respond, orally or in writing. If the borrower does not respond, that ends the servicer's duty to give a HAFA offer. Servicers must consider HAMP eligible borrowers for HAFA within 30 days after the borrower does at least one of the following:
- Does not qualify for a HAMP trial period plan
- Does not successfully complete a HAMP trial period plan
- Is delinquent on a HAMP modification (misses at least two consecutive payments)
- Requests a short sale or DIL
Eligibility Criteria:
The loan meets the basic eligibility criteria if all of the following conditions are met:
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The property is the borrower's prinicipal residence, except that the property can be vacant up to 90 days prior to the date of the Short Sale Agreement (SSA). Or the borrower was required to relocate at least 100 miles from the property to accept new employment or was transferred by the current employer and there is no evidence that the borrower purchased a one to four-unit property 90 days prior to the date of the SSA;
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The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
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The mortgage is delinquent or default is reasonably foreseeable;
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The current unpaid principal balance is equal to or less than $729,750; and
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The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income.
Liability:
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The lender must forfeit the ability to pursue a deficiency judgment against the borrower for the difference between what the borrower owes and what the home sold for.
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Under the Mortgage Debt Forgiveness Relief Act that is in effect until 2012, borrowers no longer pay taxes on the debt foregiven on their primary residence.
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