Written by Allison Hopkins
As always, Victoria likes to keep her clients well informed of their options. When it comes to short sales, there are several differences in the HAFA short sale and traditional short sale processes. As with all of these new programs, there is the guideline and then there is how they function in reality. That is where Victoria can help navigate the process.
Selling the Property
Traditional – can be sold by a realtor or by owner.
HAFA – must be sold by a realtor.
Making Mortgage Payments Prior to Sale
Traditional – homeowners usually live payment free during the short sale process.
HAFA – owner must make mortgage payments up to 31% of their income; failure to pay may disqualify them.
Waiving the Deficiency
Traditional – debt is not forgiven after closing; lenders can demand a deficiency (but not in California). More research on the new California rulings below.*
HAFA – deficiency is waived.
Receiving Funds at Closing
Traditional – seller receives no funds.
HAFA – sellers can receive cash incentives at closing up to $3,000.
Traditional – lenders can take as long as needed to approve or deny short sale.
HAFA – there are stricter and shorter timelines for the lenders (guidelines are not followed all the time currently).
Negotiating the Sale
Traditional – lenders won’t begin until buyer has signed an offer to purchase with most of the banks.
HAFA – lenders start the process before property is listed by the realtor, or at the same time.
Traditional – lender doesn’t give approval until right before the closing.
HAFA – lenders must approve within 10 days of receiving an offer (once valuation is established, which currently has no set time frame).
*SB 931, Effective January 1, 2011
Discharge of balance of loan indebtedness after a short sale for residential 1-4 real property by holder of a first deed of trust
This new law prohibits a lender holding a first deed of trust (purchase money or refinance) for a dwelling of 1-4 units to demand a deficiency judgment (unpaid balance due on the loan) from the trustor or mortgagor (owner) who sells the dwelling for less than the remaining amount of the indebtedness due at the time of the short sale to which the lender has consented in writing.
However, if the owner commits either fraud with respect to the short sale, or waste with respect to the secured real property, then the lender may seek damages and use existing rights and remedies against the owner or any third party for fraud or waste. Note that this law doesn’t apply if the trustor or mortgagor is a corporation or political subdivision of the state. Adds Section 580e to the Code of Civil Procedure.
All parties to the contract will need to sign an Affidavit of “Arm’s Length Transaction.”
Affidavit of Arm’s Length Transaction
No party to the contract is a family member, business associate, or shares a business interest with the mortgagee. Further, there are no hidden terms or special understandings between the seller or buyer or their agents or mortgagee. The Buyers and Sellers nor their Agents have any agreements written or implied that will allow the Seller to remain in the property as renters or regain ownership of said property at anytime after the execution of this short sale transaction. None of the parties shall receive any proceeds from this transaction except the sales commission.