How Does a HAFA Deed-in-Lieu of Foreclosure Work?

If you qualify for assistance under the Housing Affordable Modification Program (HAMP) but do not think you will be able to make payments regardless, you may need to take the process one step further and opt for the Housing Affordable Foreclosure Alternatives (HAFA) program. This option is extended to any person who meets the federal regulations for the HAMP program but faces foreclosure. The program makes it possible to pursue an approved short sale or deed-in-lieu of foreclosure option.

Qualifying for HAFA

You must qualify for HAFA by first qualifying for HAMP. This means you will have to meet the following regulations:

  • You must be living in the home as your primary residence
  • The loan must have been originated before the cut off date of January 1, 2009
  • The sum remaining on the loan must be less than $729,750
  • You must show a qualifying event that would lead to imminent default without assistance
  • Your mortgage payment must not exceed 31 percent of your income

Once you qualify for the HAMP program, you will begin the process of modification with government assistance. If you miss a payment or your loan goes delinquent during this period of time, it may be reasonable to assume you cannot afford your mortgage even with the assistance. In this case, you can opt for the HAFA option instead. Essentially, the HAFA option to either aim for a short sale of deed-in-lieu transaction is only available if modification of your loan will not be enough. 

Choosing Deed-in-Lieu of Foreclosure

Short selling a home can be a hassle, and there is always the chance you will not be able to find a borrower despite the HAFA incentives. If this occurs, you could end up in foreclosure regardless of qualifying for the HAFA program. Many homeowners would prefer to use the deed-in-lieu of foreclosure option (DIL). This option simply means the lender seizes your asset. Instead of reporting the event as a foreclosure, though, the lender simply excuses you from remaining debt obligations in exchange. This option is less likely to be offered by a private lender. As a result, the HAFA program can be a very useful tool in negotiating this option. Over 100 lenders have signed up to participate in the HAFA program; chances are, you can capitalize on this benefit.

Navigating the DIL Process 

If you elect the DIL process, you will have a short period of time to remove your property from the home. The home must be in a state of repair when it is turned over to the lender; a home in a state of disrepair could violate the DIL contract. If the lender determines your home is acceptable, you will hand over the deed, and you will be released from your mortgage debt. The event will not be reported as a default. You will lose the equity you had in your home, but your credit will be safe, and the mortgage lender cannot continue to contact you for the debts you previously owed on the property.