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HAFA Helping Homeowners: A Guide to Short Sales

by The KCM Crew

Excellent article by KMC on a short sale government program – HAFA:

Today’s post is dedicated to helping families find an alternative to foreclosure, and helping them return to the goal of homeownership more quickly; therefore, we are emphasizing the brochure developed by the National Association of Realtors (NAR) that nicely summarizes the existing HAFA Program.

On November 30, 2009, the Obama Administration released guidelines and uniform procedures for its Home Affordable Foreclosure Alternatives Program (HAFA). Modified HAFA rules for loans owned or guaranteed by Fannie Mae or Freddie Mac will be issued in coming weeks. HAFA does not apply to FHA or VA loans.

About HAFA

HAFA, which will help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP), provides incentives in connection with short sales and deeds-in-lieu of foreclosure.

The program:

Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.

Uses borrower financial and hardship information already collected under HAMP.

Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).

Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).

Requires 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 (no cash contribution, promissory note, or deficiency judgment is allowed).

Uses a standard process, uniform documents, and timeframes/deadlines.

Provides 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.

Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

The program sunsets on December 31, 2012.



If a servicer has not already discussed a short sale or DIL with the borrower, it must notify the borrower in writing of these options and give the borrower 14 calendar days to respond, orally or in writing. If the borrower does not respond, that ends the servicer’s duty to give a HAFA offer.

Servicers must consider HAMP-eligible borrowers for HAFA within 30 days after the borrower does at least one of the following:

Does not qualify for a HAMP trial period plan

Does not successfully complete a HAMP trial period plan

Is delinquent on a HAMP modification (misses at least 2 consecutive payments)

Requests a short sale or DIL

Short Sale Agreement

The borrower has

14 calendar days from the date of the Short Sale Agreement (SSA) to sign and return it to the servicer. The SSA must give the borrower an initial period of 120 days to sell the house (extensions permitted up to a total of 12 months).

Purchase Offer

Within 3 business days

a copy of the sale contract and all addenda

buyer documentation of funds or pre-approval/commitment letter from a lender

all information on the status of subordinate liens and/or negotiations with subordinate lien holders.

of receiving an executed purchase offer, the borrower (or agent) must submit a completed Request for Approval of Short Sale (RASS) to the servicer, including

Within 10 business days

after the servicer receives the RASS and all required attachments, the servicer must approve or deny the request and advise the borrower.


The servicer may require the closing to take place within a reasonable period after it approves the RASS, but not sooner than 45 days from the date of the sales contract unless the borrower agrees.

The servicer must release its first mortgage lien within 10 business days (or earlier if required by state or local law) after receipt of sales proceed from a short sale or delivery of the deed in the case of a DIL. Investor must waive rights to seek deficiency judgments and may not require a promissory note for any deficiency.


Who is eligible for HAFA?

The borrower must meet the basic eligibility criteria for HAMP:

Principal residence

First lien originated before 2009

Mortgage delinquent or default is reasonably foreseeable

Unpaid principal balance no more than $729,750 (higher limits for two- to four-unit dwellings)

Borrower’s total monthly payment exceeds 31% of gross income

How is the program being implemented?

Supplemental Directive 09-09 (November 30, 2009) gives servicers guidance for carrying out the program. A short sale agreement (SSA) will be sent by the servicer to the borrower after determining the borrower is interested in a short sale and the property qualifies. It informs the borrower how the program works and the conditions that apply.

After the borrower contracts to sell the property, the borrower submits a “request for approval of short sale” (RASS) to the servicer within 3 business days for approval. If the borrower already has an executed sales contract and asks the servicer to approve it before an SSA is executed, the Alternative RASS is used instead. The servicer must still consider the borrower for a loan modification.

What are the steps for evaluating a loan to see if it is a candidate for HAFA?

1. Borrower solicitation and response

2. Assess expected recovery through foreclosure and disposition compared to a HAFA short sale or deed in lieu of foreclosure (DIL)

3. Use of borrower financial information from HAMP

4. Property valuation

5. Review of title

6. Borrower notice if short sale or DIL not available (to borrowers that have expressed interest in HAFA).

What else should I know?

The deal must be “arms length.” Borrowers can’t list the property or sell it to a relative or anyone else with whom they have a close personal or business relationship.

The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end of 2012, however, forgiven debt will not be taxed if the amount does not exceed the debt that was used for acquisition, construction, or rehabilitation of a principal residence. Check with a tax advisor.

The servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment, which may hurt credit scores.

Buyers may not reconvey the property for 90 days.

Here is a printable copy of NAR’s HAFA Brochure and NAR’s Text-Only version of the Brochure.  If you’d like more information on HAFA and more detailed FAQs, visit

Courtesy of The KCM Crew


Sell with dignity, preserve your creditworthiness and start rebuilding your life.

I have helped many clients  avoid foreclosure.

For more information and a FREE REPORT ON SHORT SALES please call

Barbara Pedersen
Realtor®, Short Sale Specialist
(708) 539-9900

or email:

August 28, 2010 Posted by | Short Sales | Leave a comment


Are Modification Programs Actually Working?

by The KCM Crew on August 24, 2010 ·

One of the greatest threats to a housing recovery is the months’ supply of housing inventory available for sale. A normal market would have between 5-6 months inventory. We currently have 8.9 months of inventory and most experts believe that number will increase rather dramatically when the National Association of Realtors’ August Existing Housing Report is released today. The supply of inventory is made up of two categories of properties: non-distressed and distressed (short sales and foreclosures).

Part of the administration’s stimulus package was aimed at curtailing the flow of distressed properties coming to the market therefore easing the downward pressure on home prices.

The Home Affordable Modification Program (HAMP) is the administration’s hope for troubled homeowners trying to avoid foreclosure by modifying their current mortgage payments. The original press release said the program was:

“…aimed at helping 3 to 4 million at-risk homeowners – both those who are in default and those who are at imminent risk of default – by reducing monthly payments to sustainable levels.”

The goal was to help prevent 3-4 million distressed properties from coming to the market.

How close to goal is the program?

The administration released the August Housing Scorecard yesterday. The report attempts to convey the successes of the administration’s policies in stabilizing the housing market. The report shows that they have completed only 434,700 permanent modifications to date. The administration also just announced that of those permanent modifications, 19.6% will re-default within 9 months. That leaves over 3 million properties that will probably end up as distressed sales.

Mark Zandi, chief economist at Moody’s Analytics, probably said it best:

“The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications.”

What does this mean?

There will be more and more distressed properties coming to market. Even the Housing Scorecard addresses this issue both in print and with a graph:

“Foreclosure completions also inched upward as the volume of serious delinquencies continues to work through the pipeline.”

Though the numbers of foreclosure notices are stabilizing, the numbers of repossessions are still on the rise.

Bottom Line:

The modification program has not been the answer the administration had hoped it would be. There will continue to be downward pressure on home prices as the inventory of distressed properties continues to mount.

Courtesy of KCM,


Sell with dignity, preserve your creditworthiness and start rebuilding your life.

I have helped many clients  avoid foreclosure.

For more information and a FREE REPORT ON SHORT SALES please call
Barbara Pedersen
Realtor®, Short Sale Specialist
(708) 539-9900

or email:

August 28, 2010 Posted by | Uncategorized | Leave a comment


Everybody Calm Down. Armageddon Is NOT Upon Us!
A must read from Steve Harney:

by Steve Harney on August 26, 2010 ·

New housing numbers have definitely been a major news story over the last 48 hours. The Dow dropped over 100 points on the announcement of July’s existing sales numbers. The cries of a double-dip sound like the screams of Chicken Little: ‘The sky is falling! The sky is falling!’ Pundits are claiming real estate will never be looked at the same again. We asked Steve Harney to comment on what the report actual means to the housing recovery. As always, he was more than willing to share his insights. – The KCM Crew

I want to start by saying that Armageddon is not upon us.
Was NAR’s Existing Home Sales Report tough to read? Yes.
Were there any surprises in the report?
Just one: the fact that prices have remained stable. And that was good news.

All the panic and gut-wrenching revolves around two numbers:

  1. The lack of sales in July
  2. The months’ supply of inventory now available

Neither number was a surprise to anyone truly following the real estate market. Right here in this blog, the KCM Crew has been claiming for the last nine months that sales in 2010 will be approximately what they were in 2009. The tax credit moved many purchases forward as buyers wanted to be in contract before the April 30 deadline. That push forward of demand created a false sense of hope that a major market comeback was taking place in the spring. It also created this current vacuum of demand during the summer.

Just as we should have realized that the great market of the spring could not be sustained, we must now realize that plummeting sales numbers will not continue. It may take one or two months for the impact of the tax credit to fully dissipate. After that, we will see a more normal buyer demand throughout the fall and winter. We must not forget that people decide to move every day. Prices are great, interest rates are at historic lows and the assortment of properties for sale is fabulous. Buyers will buy!!

In regard to the months’ supply of homes for sale, we must remember one basic principle: prices will come down if demand is constant and inventory increases. Houses will sell over the next twelve months, approximately 5 million of them. There may be more than double that amount trying to sell however. Which ones will sell? Those that are priced correctly for the current market. Your price must be compelling in order to make your home attractive to today’s buyers who have a tremendous selection of homes from which to choose.

As the year moves forward, it is my belief that months’ inventory will remain in double digit numbers. That means that prices will continue to soften.

What does this mean to you?

You definitely will be able to sell your home and move on with your life. If that’s the goal, you will do better financially if you do it sooner rather than later.

August 28, 2010 Posted by | Uncategorized | Leave a comment



Excellent article by Judy Chapman of Coldwell Banker:

Ever since real estate began to melt down in late 2006, we’ve been digging around for the reason. Hunting for clues like detectives in a mystery novel.

It would be nice, wouldn’t it, to put all the clues together and find the one culprit out of the many. Then we could say with finality, “The butler did it!”

But when Agatha Christie wrote Murder on the Orient Express, she turned the genre on its head with, “They all did it!”

While we know that subprime loans began the something-for-nothing phase in homebuyer scams — yes, scams — it didn’t explain everything.

Thus began the blame game …

Banks, or as we like to say these days, ‘banksters’ – who sold their nothing-down piggyback loans, Alt-A no-income-verification loans, and ARMs with enticing initial interest rates to homeowners who blindly trusted.

Homebuilders – who used granite countertops and stainless steel appliances to inflate home values.

Homebuyers – No, not all homebuyers, but the ‘free-lunchers’ who treated home purchases as auctions and financed them with nothing down.

Financiers (we’re bank to ‘banksters’ again) – who introduced mortgage backed securities (MBSs) disguised as collateralized mortgage obligations or ‘derivatives’ to protect investors from risk (aka losses). See how well that turned out.

So, okay, there’s more than enough blame to go around. But while we were busy pointing fingers every which way like the Scarecrow directing Dorothy down the Yellow Brick Road, we forgot about another disease that brought the real estate market down and continues to sicken the entire economy.

It’s called the HELOC (Home Equity Line of Credit) Loan. Until I read this article in the NY Times, I never thought before about the damaging effects second loans have had on our housing market. If it weren’t for the second loan, many homeowners would not have lost their homes. And if it weren’t for the second loan, the rest of us wouldn’t have seen the values of our homes hit the skids.

In the early to mid-2000s — those halcyon days of homeownership that lead right up to the real estate crash — homeowners who saw the values of their homes skyrocket into the stratosphere were enticed, even encouraged, to ‘cash out’. Banks made it easy. In many cases, the very same banks who wrote the original home loan. They shouted it from the rooftops. “Come on in! Free money! Just sign on the dotted line!”

Equity loans are meant to finance new roofs, remodeled kitchens, or backyard pools. But in the 2000s, there were no rules. Homeowners entered the doors of a bank empty-handed and came out through the revolving door with a hundred-thousand greenbacks clutched in their sweaty hands. Did they use those loans to improve their homes? Some did. Most didn’t. And here’s why.

All anybody had to do was look around. The real estate market was booming. ‘Flipping’ didn’t just mean making pancakes on a Sunday morning. Astute investors were turning handsome profits. Most had been doing it for some time. Some were contractors who used their spare time to bring in extra money. They used their smarts and their own hands. They knew how to recognize those diamonds in the rough, applied the tools of their trade, and turned a profit at the end of their hard work.

Along came the new investors who didn’t want to get their hands dirty and couldn’t recognize those diamonds in the rough. They purchased anything with a roof and paid top dollar. Who were they? They were your neighbors. Or the guy who cut your grass. Or your sister.

Hey, why own one house when a second house would do just as well?

Why not buy a McMansion, then rent out your modest ranch, wait a year or two, and sell it for more money than you ever dreamed of?

Or why not invest in a house, put in new carpets, paint the walls, and flip it? What’s so hard with that? And why stop with one? The go-go real estate market was bound to go on forever. Well, wasn’t it?

And then the market turned on a dime and came crashing down. And all those ‘investors’ were stuck with white elephants they couldn’t unload unless they lost a bundle.

If you want to blame those folks who had their greedy heads in the clouds, please do. They deserve every single rebuke. They weren’t prudent. They weren’t wise. They didn’t do their homework. They were suckered into ‘free money’ that wound up costing them more than they ever dreamed possible.

But even while you cast blame, don’t say good riddance. Because those ‘suckers’ could very well be your brother, your sister-in-law, or your son … coming back home to live with you … because they have nowhere else to go!

Some of us were wiser and didn’t fall for the ‘free money’ ploy. But we shouldn’t feel smug. Had we been truly wise, we would have sold our homes when values soared through the roof. We would have squirreled away our profits, hunkered down, and waited. Waited for the crash we all knew … in the darkest chambers of our hearts … would happen. Had to happen. Like Newton’s apple falling from the shady tree we were sitting beneath.

In a way, most of us were suckers. Thinking the free ride would go on forever. Thinking the Great American Dream was a pot of gold at the end of the rainbow.

But now those banks who enticed our friends and relatives and neighbors with all that ‘free money’ are turning the screws. By robbing them with one hand and taking away their homes with the other. Yes, by working two ends against the middle.

Go on now and read this article in the NY Times. Find out how your local Wells Fargo, Bank of America, and JP Morgan Chase are turning the screws on the real mortgage investors — Fannie or Freddie (yes, us, the American taxpayer) — while holding homeowners hostages for those banks own equity loans. Two ends against the middle. And the rest of us losing in the bargain.

*  *  *  *

by Judy Chapman

Coldwell Banker Residential | 521 E Mitchell Hammock Rd | Oviedo FL 32765
© 2007-2010 by Judy Chapman ALL RIGHTS RESERVED. Portions of this content may be used with attribution. Listings on this blog may not be used anywhere else or linked back to this blog.

August 23, 2010 Posted by | Uncategorized | Leave a comment


What are your alternatives to foreclosure?

Unfortunately foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided.

There are several options:

A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender’s approval and will ‘reinstate’ a mortgage up to the day before the final foreclosure sale.

  • Pros: Does not require the mortgage company or lender’s approval.
  • Cons: Requires that a homeowner be able to pay all back payments, fines and fees.

Forbearance or Repayment Plan
A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

  • Pros: Allows the homeowner to make back payments over time.
  • Cons: The homeowner has to be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed.

Loan Modification
A loan modification is the reduction of one of the following: the interest rate, the principal balance,  the term, or any combination of these. Typically the homeowner will get a lower payment and a more affordable mortgage.

  • Pros: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan
  • Cons: Requires that a homeowner ‘qualify’ for the new payment and will often require full documentation.

Rent the Property
Use the rental income to pay the mortgage.

  • Pros: Allows homeowner to keep property indefinitely.
  • Cons: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance.

Deed in Lieu of Foreclosure
Deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.

  • Pros: Many times in a successful deed in lieu, the lender will forego their right to a deficiency judgment.
  • Cons: Requires that a homeowner vacate the property, and a deed in lieu may be reported to credit bureaus as a foreclosure.

Many have considered and marketed bankruptcy as a ‘foreclosure solution,’ but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

  • Pros: Does not require lender approval.
  • Cons:If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall—not stop—the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven years.

If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.

  • Pros: In some cases, this will lower payments.
  • Cons: In today’s market, a refinance will almost always raise mortgage payments, and is an expensive process.

Sell the Property
Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.

  • Pros: Allows homeowner to avoid foreclosure and harvest some of their equity.
  • Cons: In many cases today, homeowners do not have sufficient equity to sell their property without negotiating a short sale (see next solution).

Short Sale
If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.

  • Pros: A short sale allows the homeowner to avoid foreclosure and salvage some of their credit rating. This also keeps foreclosure off the individual’s public record, and in many cases will allow the homeowner to avoid a deficiency judgment. Borrower may qualify for another mortgage in as little as 24 months (as opposed to five years for a foreclosure).
  • Cons: Short sales can be a trying process in which a homeowner is best served by contracting with a qualified real estate agent to guide the way.

Move on to build better memories and get a good night’s sleep for the first time in months.

Save your credit. Help your family. Relieve the uncertainty.

I have helped many clients avoid foreclosure.

For more information please call

Barbara Pedersen
Realtor®, Short Sale Specialist
(708) 539-9900

or email:

August 18, 2010 Posted by | Uncategorized | Leave a comment


Why to sell short?

There are countless hardships that can turn home ownership from a joy into a burden.

The loss of a job, medical bills, or an unexpected hike in monthly payments can all make a mortgage unaffordable.  But ignoring the bills will not make them go away, it will only make things worse.

If you need help, there are approaches that can help, but you may not be familiar with them.  One of these is a “short sale.”

In an approved short sale, the lender agrees to accept less than is owed for the property, and the homeowner is relieved of the debt.  A lender may be willing to do this because it spares a lot of hassle and expense involved in executing a foreclosure.  And typically, a short sale does far less damage to the homeowner’s credit than a foreclosure does.

If you would like to explore the possibility of a short sale for your property, avoid foreclosure, and potentially save your credit rating, please contact me.
I will be in touch with helpful information.


Barbara Pedersen

Realtor, Short Sale Specialist
Phone: (708) 539-9900

August 11, 2010 Posted by | Uncategorized | Leave a comment


What qualifies as hardship in a short sale?

Simply being underwater does not qualify as hardship.  If you owe more than you are worth, being upside down alone is not adequate hardship to get a short sale approved. There has to be a financial hardship.

In nearly every case of hardship I have ever seen, a loss of income has been involved. It could be unemployment, divorce, being laid off, the failure of a business, or any of a hundred other things, but a loss or decrease of income is absolutely hardship. When your expenses remain the same and your income goes down or disappears, you have a case for hardship.  If you lose income, hardship is not hard to prove. In rare cases, income has remained the same but the payment has adjusted up, but the mathematical outcome, namely a deficit, is the same.
I can pretty much guarantee that with mortgage investors, Fannie Mae, and Freddie Mac shaking in their boots about strategic defaults that hardship will have to be proven and justified.  It may not be enough to state your hardship.  Borrowers have to provide any and all supporting documentation in order to have qualified hardship.

August 11, 2010 Posted by | Short Sales | Leave a comment


What is a short sale?

A short sale occurs when a lien holder is willing to accept less than the full mortgage pay off.

They “short” the loan pay off in order to allow the homeowner to sell the property. A property is a candidate for a short sale when all liens, plus costs of sale, exceed the market value. These liens include mortgage liens, mechanics liens, tax liens, unpaid judgments, and unpaid Home Owner Association fees.

Why would a lender agree to accept a short sale?

Obviously, a short sale is not a lender’s first choice. However, studies have shown that the cost of a foreclosure to the lender can be as high as $60,000 and take 18 months to complete. Consequently, it may be more cost-effective for the lender to enter into a short sale to minimize the extent of their losses rather than go through the foreclosure process.

What are the steps in a short sale?

There are many steps to successfully complete a short sale. A short sale transaction takes an incredible amount of time, effort, and expertise to negotiate with the lender and get the job done. Some of the typical steps include:

􀂃 Obtain a signed authorization from the seller that allows an intermediary like a realtor to speak with the lender on the seller’s behalf.

􀂃 Obtain mortgage information from the seller.

􀂃 Order a title search on the property to research liens and judgments.

􀂃 Order payoffs to know the exact numbers for the settlement statement.

􀂃 Order an estoppel letter from the Home Owner Association because many times there are back HOA fees due.

􀂃 Establish contact with the lender’s loss mitigation department and order a short sale package.

􀂃 With the seller’s assistance put together the short sale package and submit it to the lender.

􀂃 Provide access for the BPO or appraisal. Provide comps if needed.

􀂃 Assist the seller/buyer in obtaining repair estimates.

􀂃 Assist the buyer in obtaining a mortgage pre-approval before submitting an offer. The borrower’s lender is going to require proof of funds if it’s a cash deal or a commitment letter if there is financing involved.

How long will a short sale take?

Short sales can be very time consuming and require patience from everyone involved: seller, buyers, realtors, and lenders. Approval may take two days to two weeks to two months or more. Some short sales may take as long as four or five months from beginning to end. As of 2008 the average time is 8.1 weeks, according to the National Association of Realtors.

The lien holder(s) has the final say. Remember, the lender is the one who approves the short sale 100% of the time. If there is more than one lender, each one will need to be negotiated with separately.

For more information, and a FREE REPORT please call or e-mail me
Barbara Pedersen
(708) 539-9900

Short Sale Specialist, Short Sale Listing Agent
Traditional Sales and Purchases
SFR/Short Sale and Foreclousure Resource
Partner First/ServiceLink Preforeclosure Specialist Certified
ADPR/Accredited Distressed Property Representative,
CVP/BPO Certified through NABPOP
NFSTIm RDCPro,Equator, RES.NET, Realty Pilot
Classic Realty Group, Orland Park, Il

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August 8, 2010 Posted by | Short Sales | Leave a comment


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