Retire In Myrtle Beach

Definition of a Short Sale and New Federal Government HAFA Guidelines That Should Help Sellers and Buyers


A short-sale means that the Seller is trying to get their mortgage company (bank) to agree to accept less money then is owed on the mortgage and release the property owner from further obligation or let them sell the property and either workout a payment plan for the balance due to the mortgage company or have the seller liquidate other assets and bring cash to the closing table to pay the balance that has been worked out.    Short sales could mean waiting months for a response from the Bank / Mortgage Lender and in some cases there has been no response.  I have been able to help my clients purchase short sale and foreclosure properties during the past few years even though it was a long process. 

In the Myrtle Beach, South Carolina area many of the properties available through a short sale or foreclosure will not qualify for the new HEFA guidelines because the homes are primarily 2nd homes.  However,  the majority of properties that I have shown are less then five years old.  Several were brand new and had never been occupied so the waiting process may be worth you time.  

HAFA Guidelines for Short Sales That Went Into Effect April 2010 and Those That Took Effect On February 1, 2011 Should Help

Home Affordable Foreclosure Alternative Program (HAFA) is a federal government program that provides short sale guidelines for loans, that were the "risky" loans issued during the housing boom such as 0-down loans, option ARMs, and Alt-A mortgages.  They were not owned or guaranteed by Fannie Mae or Freddie Mac.  HAFA guidelines are voluntary but major banks and dozens of smaller lenders are expected to participate.

For the Sellers loan to be eligible for HAFA prior to February 1, 2011:

The property is the borrower's principal residence.

The mortgage loan is the first lien mortgage obtained on or before January 1, 2009.

The mortgage is delinquent or default is reasonably foreseeable.

The current unpaid principal balance is no more than $729,750.

The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income.

Changes that went into effect February 1, 2011:

            Income restrictions and document requirements for homeowners facing foreclosure have been eased.

            The requirement that the borrower's total monthly mortgage payment exceed a 31% debt-to-income ratio has
            been eliminated.

            Property may have been vacant for up to 12 months prior to signing a short sale agreement with the lender but
            it must have been the sellers' principal residence prior to becoming vacant.

Benefits of HAFA for Sellers:

Financial incentive for lenders to get things moving.  Servicers get $1,000 to cover their costs, and subordinate (2nd mortgage, home equity) get up to $3,000 through a matching arrangement in exchange for relinquishing their lien on the home. 

Borrowers will receive $1,500 to help with moving costs but the major benefit to borrowers is that they are fully released from future liability for the debt.  That will be the rule even in the states that are recourse states. 

Benefits of HAFA for Buyers:

The guidelines include standardized forms, procedures, and timelines, but best of all the allow the seller to receive preapproved short sale terms prior to the property being offered for sale.  Since the preapproval should eliminate the months of waiting to hear back from the lender the short sale process will be a reasonable time frame for the buyer.