For those facing foreclosure and considering a short sale instead (a process where your lender agrees to accept less than you owe on your home), the government is implementing a new program to facilitate the process.  The new program, which starts on April 5, 2010, is called the Home Affordable Foreclosure Alternatives Program (HAFA). HAFA goals are to encourage short sales as an alternative to foreclosure by streamlining and standardizing the short sale process and by offering incentives to borrowers and lenders in connection with a short sale. Why would lenders want to consider a short sale? Because it has been shown that the average loss to a lender on a home that goes through the foreclosure process is 70%, whereas the average loss to a lender through a short sale is 30%. 

Highlights of the program include:

• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).

Most homeowners facing financial hardship are eligible for the HAFA program. For a loan to qualify, it must meet the following criteria:

• The property is the borrower's principal residence
• The mortgage loan is a first lien mortgage originated on or before January 1, 2009
• The mortgage is delinquent or default is reasonably foreseeable
• The current unpaid principal balance is equal to or less than $729,750
• The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income
• The mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac

Loan servicers participating in the loan modification program, Home Affordable Modification Program (HAMP), are also required to comply with HAFA. Visit MakingHomeAffordable.gov for a list of participating servicers.

If you are facing foreclosure, please contact me, a Realtor who has a CDPE designation (Certified Distressed Property Expert) and is educated on the short sale process