This past November, the Treasury Department released guidelines for its new Home Affordable Foreclosure Alternatives Program (HAFA), designed to help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP). Under HAFA, homeowners may be able to avoid foreclosure by completing a short sale or a deed-in-lieu of foreclosure (DIL). If you or someone you know is having trouble making mortgage payments, understanding this new government program is essential.

As a Member of the Top 5 in Real Estate Network(R), I have consulted with many clients faced with a distressed property situation. The good news is HAFA is designed to simplify and streamline the use of short sales and deeds-in-lieu of foreclosure by improving the process.

Here’s how:

• Help homeowners who are HAMP eligible but nevertheless unable to keep their home
• Use financial and hardship information already collected in connection with consideration of a loan modification
• Allow borrowers to receive pre-approved short sales terms before listing the property
  •  Require borrowers to be fully released from future liability for the first mortgage debt and if the subordinate lien holder receives an incentive under HAFA, that debt as well
• Use standard processes, documents, and timeframes/deadlines
• Provide financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders

To be eligible for HAFA, homeowners must meet the basic eligibility criteria for HAMP:

• The home must be your principal residence
• The first lien must have originated before 2009
• Mortgage delinquent or default is reasonably foreseeable
• The unpaid principal balance cannot exceed $729,750 (higher limits for 2- to 4-unit dwellings).
• The borrower’s total monthly payment exceeds 31% of gross income

Under HAFA, the forgiven debt due to a short sale will not be taxed if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Check with your tax advisor. Please also know that while the debt will be forgiven, the short sale will be reported to credit agencies and have some degree of negative impact on your credit. Short sale agreements must be executed and returned no later than December 31, 2012.

If you think that you or someone you know can benefit from the HAFA program, please contact me.

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