Have you heard in the news that you can get paid for letting your home go through foreclosure?  There is a new government program that does provide financial incentives to the borrower.  The U.S. Treasury Department issued Supplemental Directive 09-09 which is being called HAFA.  HAFA is a part of a previous program called HAMP (Home Affordable Modification Program).

HAMP provided guidelines for Loan Modifications while HAFA provides guidelines for Short Sales and Deeds-in-Lieu of Foreclosure.

  • A “Loan Modification” is where the borrower keeps the house and the mortgage but the terms of the mortgage are changed to make the payment more affordable.
  • A “Short Sale” is where the home is sold for less than is owed on the mortgage.  This is done with the mortgage lender’s approval.
  • A “Deed-in-Lieu of Foreclosure” is where the borrower gives the home to the mortgage lender in exchange for canceling the mortgage loan.

The lender must first evaluate the borrower for a Loan Modification under HAMP.  The new HAFA directives will require lenders to then consider whether a borrower is eligible for a Short Sale or a Deed-in-Lieu.  The new HAFA directives will take effect on April 5, 2010, and expire on December 31, 2012.

All of the following criteria must be met to be eligible for HAMP and HAFA:

  1. The home is the borrower’s homestead property;
  2. The mortgage is a First Mortgage originated before Jan. 2, 2009;
  3. The mortgage is delinquent or reasonably will be in the future;
  4. The current mortgage balance is less than $729,750.01; and
  5. The mortgage payment exceeds 31% of the borrower’s gross income.

If a borrower qualifies for a Short Sale under the new HAFA directives, the lender will be required to forgive any deficiency on the mortgage loan.  This will be a big help to borrowers because many borrowers who sold their home in a Short Sale are now being pursued by collections agencies to collect the deficiencies owed to the banks.  The HAFA Short Sale directives prohibit the lenders from reducing Realtor commissions below 6% and provide the following financial incentives:

    • $1,500 for borrower relocation assistance
    • $1,000 for services to cover administrative and processing costs
    • $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to 2nd mortgage holders

The new directives require the borrower to make an effort to sell the home through a Short Sale before they can sign a Deed-in-Lieu of Foreclosure.  If the lender accepts a Deed-in-Lieu (DIL) under the new HAFA directives, the lender may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

The borrower may request their lender evaluate whether they are eligible for a Short Sale or DIL.  If the borrower is not eligible, then the lender must notify them in writing and explain why.

Bogin, Munns & Munns, P.A. is a full-service law firm with experienced commercial lawyers who represent many banks and mortgage lenders.  If you are a loan servicer who is interested in legal representation and assistance with the HAMP and HAFA directives, you can call our office at (407) 578-1334 to schedule a consultation.

– Zana Dupee, Esq., is an experienced attorney with Bogin, Munns, & Munns, P.A., a full service law firm with offices in Orlando, Clermont, Kissimmee, Deltona, Daytona Beach, Ocala, Melbourne, Gainesville, and Leesburg, Florida.  Mrs. Dupee works out of the Gainesville office of the firm and welcomes questions and comments regarding the above and can be reached at zdupee@boginmunns.com

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