May issue of CITATIONS - Ventura County Bar Association

16 CITATIONS • MAY 2011AN ALTERNATIVE TO RELIEF FROM STAY: MEET HAFABy Don NelsonIt was 1984. I had no thoughts of Orwellianstuff; I just wanted a “good deal” on buyinga family home. Browsing one day at obscurelegal postings buried in the paper, I stumbledon a foreclosure notice (Notice of Trustee Sale)for a house in a neighborhood that appealedto my wife and myself.I went to the foreclosure sale to observe. Withno third party bidders, it reverted back to thebeneficiary, a sub-prime lender in OrangeCounty, now no longer in business. It waseasy to contact an actual person at a lenderand negotiate a deal for an REO asset. So, Imade an offer, with a clear condition that thelender do the eviction.Little did I know of the drama that wouldfollow. I watched my one and only Sheriff’seviction. The prior owners were physicallyescorted from our future home while alocksmith changed all the locks.What does this have to do with describing alittle known U.S. Treasury Department homeloan program? It has to do with the lives ofshattered people. People who are about to losea major anchor in their lives – their home.The program is the Home AffordableForeclosure Alternatives (HAFA) program,a little known part of the Home AffordableModification (HAMP) program. Createdin 2009, the HAMP program was basicallydesigned to provide financial incentives toloan servicers and borrowers who use a shortsale or deed-in-lieu-of-foreclosure to avoidforeclosures on loans eligible for modificationunder HAMP. Many changes to the HAFAprogram, and approval of increased amounts,took place in mid-2010. Still, the HAFAprogram has found only limited success.Indeed, millions have found it to be muchlike a corn maze in Iowa – slow, frustrating,confusing and circuitous.HAFA was created as a template program forall major home loan servicers and lenders.Most major lenders, (including , locally, Bankof America, Wells Fargo and Wachovia) undergreat political pressure, have agreed to offer theHAFA program to “qualified” individuals inforeclosure or imminent default.In essences, HAFA offers a pre-approved shortsale, with standardized and reasonable terms,to provide what HAFA calls a “graceful exit”.For borrowers in bankruptcy what doesHAFA mean? Supplemental Directive 09-09(Revised) states: “Borrowers in active Chapter7 or Chapter 13 bankruptcy cases MUSTbe considered for HAFA if the borrower,borrower’s counsel or bankruptcy trusteesubmits a request to the servicer… The servicerand its counsel must work with the borroweror borrower’s counsel to obtain any court and/or trustee approvals required in accordancewith local rules and procedures. Servicersshould extend HAFA time frames as necessaryto accommodate delays in obtaining courtapprovals or receiving any periodic paymentwhen they are made to a trustee.” (And,pursuant to HAFA, borrowers must first beevaluated, by their lender, for a HAMP loanmodification.)A potential modification or short sale will offera better alternative than normal bankruptcyresults. In a 7 case, when the lender files aRelief From Stay motion and it’s granted(uncontested), frequently the debtor is alreadyin foreclosure and the beneficiary merelycompletes the foreclosure sale followed bythe eviction. In a 13 case, the debtors arefrequently “underwater” and want out of thehome. Again, the Relief From Stay motion isgranted with the same results.HAFA is smoother and less stressful, andprovides several clear benefits over a traditionalshort sale:• It stops a foreclosure (when certain conditionsare met).• The homeowner gets $3,000 in re-locationexpenses at close of escrow.• Deficiency judgments are barred.• If there is a junior lien holder (say a lineof credit), that lien holder can’t forcean unsecured promissory note on thehomeowner in order to induce its cooperationin the short sale.Who are the players in the game? First, theinvestors (read Wall Street). Virtually all realestate loans have been sold into the secondarymarket. Second, the servicer (read “bigbanks”) who “service” the loans they sold intothe secondary market. The HAFA programoffers financial incentives to the servicer fordoing a HAFA short sale, plus provides up to$6,000 to a junior lien holder for cooperatingin the sale (who would have been wiped outin a foreclosure). And, it is required that alicensed Realtor participate in the HAFA andshort sale process.So here’s the process:• Eligible and interested homeowners shouldfind and retain a knowledgeable real estateagent (Realtor) to advise about, assist withand coordinate the HAFA process. Theagent will determine a fair market range ofvalue for the property and enter into a listingagreement with the homeowner.• The homeowner will submit a Request forModification and Affidavit (RMA) packageto the servicer.• If approved by the investor and servicer, theservicer will send the Short Sale Agreement(SSA) to the borrower. It must also be signedby the agent.• The home is now marketed like a traditionalhome sale followed by a normal escrow.Of course, there is much more involved inthe HAFA process, and certain restrictiveeligibility requirements, and many otherconditions which must be met prior toapproval, which is not guaranteed. Indeed,under the HAFA program, lenders are onlyrequired to “consider” eligible borrowers.An internal Bank of America HAFA guidedated March 15 listed the success rates for atraditional short sale and a HAFA short sale.Under the Approval/Closure Rates category,traditional short sales had a “low-medium”success rate while HAFA sales had a “high afterqualification” success rate.Is everything “‘peaches and cream’” with aHAFA short sale? You wish! And, of coursenot. The servicers are still overwhelmed andinvestors are cranky (for recovering lots lesson their loans, “big haircuts”). But, banks aretrying to curry political favor with Washingtonby cooperating in this U.S. Treasury program.It could be a very nice tool to add to yourprofessional toolbox, plus provide a potential,federally-mandated “graceful exit” for yourclients.Don Nelson is a 25year Realtor and brokerin Ventura He can becontacted at DonNelson@DonNelsonTeam.com