The HAFA Program: Another Option for Homeowners in Over Their Heads

The Home Affordable Modification Program (HAMP) is a Federal program designed to make $75 billion available to assist about four million homeowners facing foreclosure. Eligible participants could lower their mortgage payments to 31 percent of their pre-tax income through loan modification so long as the modification equals or nets more value than a foreclosure.

Many homeowners who have been approved for a HAMP modification are still unable to make the required monthly mortgage payments and find themselves again in danger of foreclosure. For them, one viable option is the Home Affordable Foreclosure Alternative (HAFA).

HAFA is a little-known program that has been in effect since April 5, 2009. It assists homeowners in facilitating a short sale of their homes as well as protecting them from delinquency judgments. It also offers them up to $3,000 in relocation expenses. A short sale is a sale of property for less than the balance owed on the property's loan.

The HAFA program is designed for those homeowners who qualify for HAMP but find themselves still delinquent on their mortgages. Although the program does not provide a means for debtors to keep their homes, it does allows them to obtain pre-approval for a short sale before the home is listed.

Unlike a conventional short sale, a HAFA short sale does not negatively affect the homeowner's credit.

The borrower must be free of any liabilities that might arise from the first mortgage debts, such as liens. The program does not require a promissory note. Homeowners who request consideration for HAFA have only 14 days to respond once they receive a written notice that the program might be available to them. This is to give the lender time to meet a 30-day deadline.

The program also offers incentives to each subordinate lien holder to keep up to $3,000 of a short sale, subject to the first lien lender's approval. To be eligible, each must waive its right to collect the balance due on its loan. Since it is unlikely these lenders would realize any return on their loans in a foreclosure or a normal short sale, this provision encourages them to participate in the HAFA program.

The short sale agreement (SSA) stipulates that the homeowner find a buyer and complete the transaction not less than 120 days from the time the SSA is mailed to him and that the buyer hold the property for at least 90 days after closing.