In May 2009, the Federal government announced a program designed to help homeowners struggling to avoid foreclosure, and not eligible for other modification programs being offered. The Home Affordable Foreclosure Alternatives (HAFA) program is the first time a standardization of procedures for offering an approved short sale has been created. Unfortunately, currently, this program will not apply to loans owned or guaranteed by Fannie Mae or Freddie Mac. It is expected that both Fannie and Freddie will announce similar initiatives with similar guidelines sometime in the near future.

The program will also provide guidance, forms, and incentives to mortgage servicers to also accept Deeds-In-Liew of Foreclosure (DIL).

The borrower who is seeking an approved short sale needs to meet the criteria established under the Home Affordable Modification Program (HAMP):

Must be the borrower's principle residence. First lien mortgage originated prior to 2009. The mortgage default or delinquency is reasonably foreseeable. The total mortgage balance must be no more than $729,750. (there are higher limits for 2-4 unit dwellings) Borrower's total monthly payment exceeds 31% of gross income.

Short Sale Agreement (SSA)- The mortgage servicer will send this to the borrower after determining the borrower is interested in a short sale and the property qualifies. It informs the borrower how the program works and the conditions that apply.

Request for Approval of Short Sale (RASS). After the borrower contracts to sell the property, the borrower submits a RASS to the servicer within 3 business days for approval.

Alternative RASS. If the borrower already has an executed sales contract and asks the servicer to approve it before an SSA is executed, the Alternative RASS is used instead. The Servicer must still consider the borrower for a loan modification.

In several ways.

Provides HAMP eligible borrowers, who choose to not modify their loans, an alternative method to attempt to solve their dificulties.

Allows a borrower to receive a pre-approved short sale before listing the property (including the minimum acceptable net proceeds).

Requires borrowers to be fully released from future liability for unpaid first mortgage debt.

Provides up to $1500 for borrower relocation assistance. The lack of funds to the borrower with a normal short sale is often a further issue limiting a borrowers relocation options.

They must offer the borrower 14 calendar days to respond, either orally or in writing, to a proposal under HAFA for a short sale approval or a deed in lieu of foreclosure action. If the borrower fails to respond in the 14 day period, the HAFA obligation of the mortgage company ends. In other words, the borrower needs to respond or face traditional default actions from the lender.

The short sale agreement must allow the borrower an initial 120 days to sell the house. Extensions are allowed up to 12 months.

Within 10 business days after the mortgage servicer receives a Request For Approval of A Short Sale (RASS) and all required attachments, the mortgage servicer must approve, deny, or advise the borrower.

Unless the borrower approves a shorter time frame for closing, the mortgage servicer must not require a closing to occur sooner than 45 days from the date of the sales contract.

The investor who is actually the owner of the morgage and note must waive their rights to seek a deficiency judgement. They also are not allowed to require a promissory note for any deficiency.

They must respond to the HAFA proposal for an approved short sale or deed in lieu of foreclosure within 14 calendar days or face traditional default procedures. This response may be orally or in writing, though writing is strongly suggested.

Borrower must have tried for a HAMP modification and not been able to qualify or make the payments. Borrower may also specifically request a short sale or deed in lieu to the mortgage company.

Borrower must sign and return the Short Sale Agreement within 14 calendar days from the date of the agreement or face cancellation of the offer.

Within 3 business days of receipt of an executed purchase offer, the borrower or their agent must submit a completed Request for Approval of a Short Sale (RASS) to the mortgage company. In addition, the submittal must include: Copy of the Sale Contract and any Addendum Buyer documentaiton of funds or pre-approval commitment from a lender All information on the status of subordinate liens and or negotiations with subordinate lien holders.

No. HAFA specifically excludes payment of any commission to any parties to the sale.

No..but they are allowed to initiate the proceedings involved with foreclosure. So, just because a borrower is attempting to sell or close on the sale of a short sale, they may still be served with a Notice of Default or a Foreclosure Hearing may be scheduled.

No. The short sale must be considered an "arms length' transaction to be approved. It appears that borrower may not list or sell the home to a relative or anyone else with whom they have a close personal or business relationship.

The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end of 2012, however, the tax may not apply. Forgiven debt will not be taxed if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Check with a tax advisor.

The mortgage company will report to the credit reporting agencies that the mortgage was settled for less than full payment. There will be a negative effect on credit scores.

Buyers may not reconvey the property within 90 days after closing.