Your home value is less than the amount owing on your mortgage loan. You still have a job, but have been falling further and further behind on payments since your company ‘right-sized’ you. You’re getting to the stage where there may be no catching up.

A short sale may be appropriate for you. New rules governing short sales are designed to make the process faster and less difficult.

The Treasury’s Home Affordable Foreclosure Alternatives – “HAFA” program is aimed at speeding up the lender’s decisions on short sales and to make life a whole lot easier for you, the seller. Before this program came to being, the period for a short sale could take anywhere from 3 to 18 months with plenty of anguish through the middle.

A short sale can only be done with the lender’s permission. If the lender takes forever to decide, you as seller, may have lost opportunities to sell the home when a prospective buyer just doesn’t have the time or patience to wait through such an uncertain process.

Under the HAFA program, the lender decides up front the minimum price it will accept. Then there are tight deadlines for the lender and homeowner to meet. In the end the seller gets $3,000 in moving expenses for leaving the home in good condition.

Those who qualify for HAFA and request a short sale receive a 7 page document called a “Short sale Agreement” from their lender. The borrower has 2 weeks to respond and then has 4 months to sell their home.

Step 1: borrower hires a real estate agent while lender obtains a market valuation

Step 2: borrower continues to make mortgage payments but they are reduced to no more than 31% of their monthly income. The lender tracks the shortfall between what is owed and what is paid

Step 3: borrower waits for prospective buyers to make offers. The lender decides the minimum acceptable net proceeds. This amount is impacted by the presence and amount of the second mortgage; amount owed on first mortgage; unpaid interest owed, closing expenses & real estate agent commissions.

The lender established the acceptable net amount, although they are not obliged to tell the borrower this bottom line amount.

The Seller and buyer send the lender a “request for approval of short sale” or RASS to which the lender will provide a yes or no answer within 10 days. If the offer meets the minimum acceptable net proceeds, the required answer from the lender is “Yes”.

It doesn’t pay for an expensive move, but the $3,000 paid to the seller as a ‘relocation incentive’ is very useful as it allows the seller breathing room to find other accommodations.

Before there was HAFA, there was HAMP – the “Home Affordable Modification Program”. Though well intended, HAMP failures are in the 70% range since HAMP focused upon modification of the terms and rates for the mortgage loan instead of addressing the core issue – that the value of the note exceeded the market value of the home. Both programs are specifically designed to help homeowners stay out of foreclosure.

Although this new HAFA program definitely streamlines the previously very cumbersome process of short sale, there are circumstances where it can get more complicated. Lenders holding a home equity line of credit may block the short sale if they don’t get paid in some manner.

Faced with the all too ugly prospect of having to sell your home in a short sale, there never has been a better time to do it. The process is much easier with the HAFA program and, the process is a much less public experience than a foreclosure. As well, there is less damage to your credit with a HAFA short sale. If I can be of any assistance with this or other real estate needs, please feel free to call.