I am amazed at the number of banks that blatantly disregard the federal guidelines for HAFA, most importantly those that say the bank must respond to an offer within 14 days. Even for preapproved HAFAs, it takes some lending institutions 60 to 120 days to respond.
Part of the problem is some banks, such as Bank of America, outsource the processing of these short sales to third-party vendors such as AMS or GMOSS. In all honesty, my personal experiences with AMS have been less than stellar and often downright frustrating. GMOSS, not so bad.
AMS short sale procedures remind me of a 2005 Bank of America short sale, back in the old days. It was during the early years of short sales, from 2005 through 2009, that Bank of America had earned its initially bad reputation for processing short sales. You would think that Bank of America would recognize the signs of such poor service and take steps to rectify this gaping hole in an otherwise well oiled short sale machine, which is evident today in Equator.
IS HAFA Good For Short Sale Sellers?
HAFA provides protections for sellers. In short, it provides 3 basic protections, among a few other lesser benefits:
- HAFA releases the seller from personal responsibility. There is no deficiency.
- HAFA sellers are not required to make a seller contribution.
- HAFA sellers receive up to $3,000 to do the short sale.
In California, SB 458 has pretty much eliminated the need for HAFA, with the exception of the $3,000 relocation allowance for sellers. In other words, the main benefit to a California seller is the HAFA relocation incentive. For some sellers, that amount of money is not worth the hassle of HAFA. Some sellers would rather poke out their eyes with hot poker stick than attempt a HAFA short sale.
Where Did HAFA Short Sales Go Wrong?
Part of the problems associated with HAFA stem from the fact it is a government program. HAFA is complicated. There is a lot of red tape to follow. But part of the problem is also the fact each bank interprets HAFA guidelines independently.
As a result, there is little conformity in the HAFA short sale program. Each bank negotiator makes up different requirements for the HUD. Those requirements can also change from day to day. Not to mention, the process takes too long for many sellers.
I have worked on some AMS HAFA short sales in which I have submitted so many revised HUDs that after 5 or so revisions, I've lost count. A favorite trick is for AMS to request a revised settlement date, then take so long to respond to the uploaded HUD that the date expires. Sometimes, they request a change in the verbiage for a line item. After that change is made, then AMS might demand that we change it back.
My last 3 preapproved HAFA short sales were handled by AMS in this manner. This is why I no longer do a Bank of America preapproved HAFA short sale because, from start to finish, they can take longer than 6 months. A regular HAFA short sale is faster at Bank of America. A regular short sale is faster still. Don't be fooled.
Why Banks Want Sellers to Apply for HAFA
Banks are not in the business to be your friend. They don't really care about sellers who are underwater. Some banks are swamped with hundreds of thousands of underwater homes without equity -- so many that the bank doesn't have the resources to manage all of these homes. The longer the sale date is delayed, the longer the bank has before it is required to report an asset as a liability.
Moreover, in a HAFA short sale, the bank is paid an incentive to do the short sale by the U.S. government. Your tax dollars at work. Banks can receive up to $1,500 as a servicer. On top of this, the investor receives an incentive as well. Investors are paid on a $3 - $1 payment plan for allowing proceeds to be paid to subordinate lienholders.
If a junior lienholder receives $3,000, the investor gets 1/3 or $1,000, capped at $2,000 maximum. This means if there are 2 subordinate liens, and each receives $3,000, the investor gets a maximum of $2,000.
This might not seem like a lot of money to you until you realize that if a bank closes 10,000 HAFA short sales, instead of doing a regular short sale, the bank could earn an extra $15 million.
How Can a Seller Opt Out of a HAFA Short Sale?
Some banks such as Bank of America routinely screen every short sale candidate for HAFA. Once a file is uploaded to Equator, the borrower must call Bank of America to discuss whether the borrower is eligible for HAFA. Being eligible and qualifying are not the same thing. Almost every borrower is eligible. Much fewer qualify.
Other banks such as Chase, Wells Fargo and Citimortgage endorse HAFA programs as well. Once you start the HAFA process, you probably won't find out if you qualify for another 30 to 90 days.
The HAFA process, if you do not qualify, could cost you your buyer. Therefore, if you are doing a Bank of America short sale and elect to reject HAFA, you must notify the bank. At that point, if your file is open in Equator, ask the bank to please keep your file open. Sometimes, the files get closed by mistake. Or worse, a bank processor will open a HAFA when the HAFA has been rejected by you. Be very clear what you want and expect. Then ask your short sale agent to verify.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
