Many individuals have had to consider the option of doing a short sale, but some people were afraid to do this because Hawaii is a recourse state. This means, the amount forgiven at the close of a sale is “phantom income” and there is a tax consequence due even if you have no money to pay it. Now I have found out the HAFA (Home Affordable Foreclosure Alternatives) short sale offers some advantages the other short sales don’t.
How can a seller find out if they are eligible to qualify?
- First position loan created prior to 2009 (must be, or recently must have been borrower’s principal residence)
- Must have financial hardship
- Maximum loan balance not to exceed $729,750
- Borrower’s liquid assets not to exceed $5,000
- Borrower is delinquent, or default is reasonably foreseeable
If you are a seller in this situation, you may be solicited from the service provider who is handling your loan. This will be a letter indicating you might be eligible for a HAFA short sale.
- You have 14 days to respond to this letter, so look for it
- The agent you select to help you must be “an arms length” away…no friends, family, or business associates can handle your case
- You need to request a short sale. Don’t let the loanÂ service provider tell you the borrower must apply for and fail in Hamp modification. This is a misconception, and it is not true. The borrower does not need to go through a loan modification process; They can go directly to a short sale.
The advantages are the following:
- Relocation assistance of $3,000
- A foreclosure sale must be suspended while eligibility is determined, the property is marketed, or closing is pending
- Sellers are released of all liability on 1st and all subordinate liens
- Seller cannot be required to sign a note or pay any additional amounts to satisfy liens
- Short sale amount is pre-approved
- Purchase contracts get an answer within ten business days
- Lien holders may receive up to $6,000 total for pay off to subordinate liens
- Mortgage payments are reduced to an affordable level, or not required
Note: If you are an agent buying a HAFA short sale, you are not eligible for a commission. A buyer of a HAFA short sale can’t flip it within 90 days of closing.
Here is a good resource for information. This program will go until December 31, 2012. If you are a buyer, you may want to look for homes advertised as a HAFA short sale as you may find you get a response much more quickly.
Aloha, take care,
Diane Chavez, RS, ABR, GRI