Short Sale Plan: Borrowers Who Vacate Can Still Avoid Foreclosure

Short saleThe Obama Administration’s new short sale alternative to mortgage modifications can also apply to borrowers who have vacated their properties for up to 90 days prior to the short sale agreement, according to a new clarification of guidelines by administrators.
The added options of a short sale or deed -in-lieu (DIL) to the government’s foreclosure rescue campaign launches April 5 — known as the Home Affordable Foreclosure Alternatives, or HAFA. It is for homeowners who are unable to qualify for or have rejected government mortgage reductions, or have failed to complete a trial modification.
Under HAFA’s clarified guidelines, the mortgaged property can be vacant up to 90 days prior to the date of the short sale agreement or DIL only if the borrower provides documentation. The paperwork must verify that the borrower “was required to relocate at least 100 miles from the mortgaged property (the borrower’s principal residence) to accept new employment or was transferred by the current employer.”
In addition, there should be no evidence, “such as credit report information, indicating that the borrower has purchased a one- to four-unit property 90 days prior.”
One intent of HAFA is to relieve the spread of homes abandoned in the hardest hit neighborhoods of the foreclosure crisis.
“The options help preserve the condition and value of the property by minimizing the time a property is vacant and subject to vandalism and deterioration,” according to HAFA’s initial guidelines to mortgage servicers in November.  “In addition, these options generally provide a substantially better outcome than a foreclosure sale for borrowers, investors and communities.”
HAFA offers a short sale or DIL  alternative to a homeowner after terms are established forgiving the unpaid mortgage debt. The lender must approve a purchase offer within 10 days of it being submitted, and after an acceptable value of the home is established. 
The distressed borrower facing foreclosure would not be responsible for the difference between the balance of mortgages and the short sale price under HAFA.
The clarified guidelines also give the mortgage servicers “discretion to draft policies” making sure that junior lien holders “release their lien and the borrower from personal liability.”
In a DIL, the borrower voluntarily transfers ownership of the mortgaged property to the servicer in full satisfaction of the total amount due on the first mortgage.
Under HAFA, up to $3,000 would go to holders of second mortgages and borrowers get $1,500 to help them with moving expenses.
HAFA is administered as part of the government’s $75 billion Home Affordable Modification Program, HAMP.

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