With the success of HAFA and other mortgage relief programs, which vary by state, the glut of bank-owned vacant properties can be hedged. Overgrown lawns, stagnant, green pools and gutted interiors will begin to disappear, though it may take awhile. An increasing desire by local and national banks to work with the homeowner, rather than rush to foreclose, is allowing the educated borrower to seek alternatives to foreclosure, such as a HAFA short sale in conjunction with state relief funds.
These programs require that the bank release the borrower from a future deficiency judgment, so declaring bankruptcy is avoidable and credit can be repaired in a relatively shorter period of time. Furthermore, since it will be a buyer’s market with historically low interest rates for some time, the borrower who previously short sold will not have to disclose to a lending institution that they foreclosed. This question is included in every mortgage application.
Home Affordable Modification program, or HAMP, is designed to enable homeowners that meet eligibility requirements to avoid foreclosure by modifying loans to a level that is affordable for them and sustainable for the long-term. HAMP involves a trial period of reduced mortgage payments. In many instances, the homeowner still cannot afford the new rate.
Home Affordable Foreclosure Alternative, or HAFA, was created to provide a viable option for homeowners who are unable to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFA program took effect on April 5, 2010 and sunsets on December 31, 2012. This program provides borrower relocation assistance in certified funds at close, up to $3,000. HAFA requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed). This is a great option for many distressed homeowners.
In Nevada, after an NOD, or notice of default, is filed and posted, a homeowner usually has approximately 120 days before an uncontested, non-judicial foreclosure will have the homeowner evicted. This process can be delayed and resolved without foreclosure through a successful short sale.
Successful negotiation often results in the bank agreeing not to pursue the deficiency judgment and not sue for the remainder of what is owed. The bank will explicitly state this in their approval letter if they agree to drop deficiency collection rights; this is called “full satisfaction.” A skilled and professional real estate negotiator can help you achieve a release of the lien and in many cases full satisfaction of the loan, meaning paid in full and the bank waives their right to pursue the deficiency.
Many savvy and money-smart homeowners choose to avoid substantial attorney’s fees (usually $3,000-$6,000 up-front) and allow a certified practitioner to handle the negotiations. Many real estate experts agree that most lenders and collection agencies prefer not to deal with law firms due to excessive fees on the front and back end.
The facts about how long buyers must wait before obtaining new financing after closing a short sale.
Conventional loan: 2 years, with 20% down
FHA: 3 years from completion date (the date it was recorded on credit, not when it closed)
VA: 2 years from completion date
USDA Rural: 3 years from completion date
Jumbo: follow specific investor guidelines
Many homeowners who completed a short sale or those who chose to strategically default are unaware of timelines regarding a new purchase.
A short sale is a negotiated settlement with a bank/lienholder or any other title holder that is less than the original note. A bank will usually only consider a short sale if there is a legitimate hardship affecting the homeowner.
A good rule of thumb is, the “4 M’s”- they’re fairly self-explanatory, but I’ll give examples.
Money: underemployed, unemployed, laid off or loss of hours
Marriage: divorce, loss of income due to divorce
Medical: unexpected medical bills, lack of health insurance coupled with illness/injury
Military: active duty/deployment, relocation
These are not the only examples of a hardship that would be considered by the bank for a short sale, but they are reasons the bank will take a serious look at . If you have a legitimate hardship then the bank will usually work with you. It is important to explain and demonstrate to the bank that you have no assets with which to continue paying.
These items are required in most short sales to demonstrate financial hardship to the bank(s).
– Consecutive copies of last 2 months pay stubs or letter of explanation if unemployed
– Consecutive copies of last 2 months bank statements or letter of explanation
– Signed copies of last 2 years tax returns or form 4506-T
– Copy of last HOA statement (if applicable)
– Hardship letter or hardship questionnaire provided by bank
In addition, HAFA short sales require:
– Dodd Frank Certification
– Most recent utility bill with the subject property matching mailing/servicing address
*some banks/lienholders may require additional supporting documents.