How Does a HAFA Short Sale Work?

The Home Affordable Foreclosure Alternative (HAFA) program is one of the many programs offered through the Department of Housing and Urban Development in response to the housing crisis of 2007. The program goes under many names, including "Hope for Homeowners" and "Making Home Affordable." The proper acronym for the group of initiatives is HAMP: Home Affordable Modification Program. This program aims to assist those individuals who fell victim to the crisis stay in their homes. The HAFA portion of the HAMP programs is used by the most unfortunate home owners.

Who Uses HAFA?

To qualify for HAFA, you must first qualify for HAMP. This means your loan is more than 31 percent of your current income and does not exceed the maximum principal. Further, you must show a financial hardship, such as job loss or highly adjustable interest rate, that is causing you to have challenges affording the loan. If you qualify for HAMP, you will get a chance to modify your mortgage to save your loan. However, some borrowers will qualify but still be unable to keep the mortgage in good standing. These borrowers may qualify for the HAFA program.

What Is the Difference between a Short Sale and a Deed in Lieu?

Both options allow a borrower to walk away from a mortgage without owing further sums to the lender. In a short sale, the borrower sells the property for less than is owed on the remaining mortgage. As a result, the sum handed over to the lender will not cover the principal debt owed. The lender, though, agrees to forgive the remaining debt. In a deed in lieu of foreclosure option (DIL), the lender seizes the property. Instead of reporting the foreclosure, the lender simply agrees to take the home in exchange for closing the loan contract.

How does a HAFA Short Sale Work?

A short sale can be preferable to a DIL deal because it allows the borrower more time to attempt to sell the home, find a new residence, and leave the transaction with a sale on record instead of a DIL on record. 

If you qualify, you receive the following benefits:

  • A guaranty the new borrower will be fully released from any potential remaining debt on the property.
  • Standardized forms and processes to make the short sale option easier.
  • Incentives to offer your borrower to help sell your home.

A HAFA short sale is not all together different from any other short sale on the market. The main difference is the short sale is approved prior to the home being listed on the market. A buyer can be assured his or her offer will be accepted by the lender if the home is offered through the HAFA program. In addition, the borrower will receive discounts and benefits in purchasing this home over another home for sale at the same time. For example, relocation assistance of a few thousand dollars is guaranteed. The main benefit to a HAFA short sale is the way it is regulated. Buyers and sellers can be assured the deal will be done right and the debt officially closed.