Before looking at the different types of short sale programs, please realize that some options are not available to you. The type of program you select may depend, in part, on your particular type of loan and on the investor.
VA Short Sale and FHA Short Sale
If your present loan is guaranteed by the VA, you have a VA loan. If it is insured by FHA, you have an FHA loan. An easy way to determine if a loan is VA or FHA is to look at the percentage of original sales price. If your initial loan balance is 100% of the original sales price, your loan is most likely VA. If the loan balance was originally closer to 97% of the original sales price, it is probably an FHA loan.
The main things to know about a VA short sale or an FHA short sale are:
- Neither type of loan will qualify for the HAFA short sale program, but you can receive a relocation incentive.
- They will take longer than usual to get approval because of the additional layer to approve.
- The government will pay for a full-blown appraisal (no BPO) and expect market value.
HAFA Short Sale Program
If you have more than one lender, both of your lenders must participate in HAFA in order for you to qualify for a HAFA short sale. The HAFA short sale is a government program that, with certain restrictions, may pay you up to $3,000 to do the short sale and pay your bank to do the short sale, too.
The HAFA program guidelines were much more strict when they were initially set up and have softened somewhat over the years. You can do a HAFA short sale on investment property now as well. The biggest benefit is the banks must release you from personal liability, and there is no deficiency judgment after a HAFA short sale.
Fannie Mae is a government-sponsored entity. You will need to do a Fannie Mae short sale if Fannie Mae is the investor for your loan. This will add an additional layer of approval to the short sale process.
If you have a second loan and that second lender demands more money than Fannie Mae will allow, you might have a problem in that short sale. You may need to deal with the second lender before you open the short sale at Fannie Mae. Fannie Mae also is not known for postponing auctions. If you are closer to the trustee's auction than you are to closing the short sale, Fannie Mae is apt to choose the foreclosure.
Freddie Mac Short Sale
Freddie Mac is Fannie Mae's cousin. Freddie Mac is also a government-sponsored entity. You will need to do a Freddie Mac short sale if Freddie Mac is the investor for your loan. This will add an additional layer of approval to the short sale process.
Freddie Mac will require an arms-length affidavit. The home will be sold in its "as is" condition. Unlike many short sale investors, Freddie Mac will allow the seller to rent back for a few months.
Probably the most complex of all short sale programs is the Fannie Mae HAFA short sale. The government has instigated guidelines over the years to make the processing of this type of short sale a bit easier. If your Fannie Mae HAFA short sale is through Bank of America, it is possible the short sale will be delayed much longer than many find is acceptable.
You will probably have a better experience if you occupy the home as your principal residence, but Fannie Mae no longer requires occupancy as a condition of the short sale. It is also no longer a requirement that your loan be delinquent.
A Freddie Mac HAFA short sale needs to be preapproved in advance. This is a huge problem for some banks such as Citimortgage, which appear ill-equipped to handle a Freddie Mac HAFA short sale. I have worked with lawyers who have tried to do a Freddie Mac HAFA short sale with Citimortgage and have, like me, been completely unable to open such a short sale.
Not very bank seems to understand this preapproval requirement for a Freddie Mac HAFA short sale. But once your short sale is approved by Freddie Mac and the servicer, the short sale process moves very quickly. You can expect to get approval within 30 to 60 days.
Cash for Short Sale Programs
Everybody wants cash for a short sale, it seems. Paramount is whether the debt is forgiven and the seller released from personal liability, but some people want the cash more. The best way to figure out if you can get cash for a short sale is to ask your bank about it.
Probably the best known cash-for-short-sale programs are the Bank of America Cooperative Short Sale or the Bank of America HIN Incentive program. I've had sellers qualify for both types of Bank of America short sales and get paid from both. Generally, the benefits are:
- No hardship letter
- No financials
- No tax returns
Traditional Short Sale
A traditional short sale is the most common type of short sale program. Some short sale sellers don't want the delays that can be inherent in government programs, so even though they might qualify for a Bank of America HAFA short sale, for example, they might opt for a traditional short sale just to get the process wrapped up in a reasonable time frame.
Most banks and credit unions will offer a traditional short sale. You will need to supply financials, tax returns and generally document a hardship through a formal hardship letter, but the process is actually pretty painless. More and more banks will say yes to a short sale and no to a foreclosure. The worry people harbor about a short sale being rejected is generally unfounded, unless, of course, they plan to buy and bail.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.