HAFA Guidelines with Second Lien Holders

The HAFA guidelines state that the max amount to second lien holders is to be $6000 and no other parties such as the listing or selling agents, buyers or sellers can contribute to a higher amount that a second lien holder may be requesting. It is important to understand that second lien holders DO NOT have to be participants in HAFA. If you have a first and second with the same lien holder such as Bank of America, Chase or Wells Fargo, you have a greater chance of the second accepting the $6000. These are the top 3 financial institutions in closed short sale transactions.




I recently had a transaction with Bank of America in first position and Green Tree in second. The homeowner was approved for the HAFA program. The $6000 max allowable per Bank of America was not acceptable for Green Tree. We were approved at $8500. Green Tree would not reduce their payoff and advised us they are not participants in the HAFA program and would let the home foreclose if they did not get the additional $2500. It is amazing to me after the housing crisis of 2008/2009, there are still lenders cutting corners and putting people at risk of fraudulent activities. Green Tree insisted that we either make a payment after the close of escrow or before the close of escrow.



Making a payment before the close of escrow may sound reasonable to you. No one can stop a seller for making a payment towards their mortgage; or anyone making a payment on the sellers behalf and we avoid payments outside of escrow once it is closed. After some further research with my Real Estate attorney; unless we are able to get in writing from BofA and the HAFA department that they would allow us to pay the $2500 BEFORE the close of escrow, it is all the same as we were moments from closing. This is where it gets fun; I spoke to both the HAFA department and BofA and was told by both they did not see a problem but neither of them were willing to put it in writing therefore; all parties would be at risk of fraud.



It was hard to let all those months of hard work go to waste but at the end of the day, nothing is worth losing your license to cut a few corners to close a deal. There are ways to prevent this from happening in the future. The law that passed last July, extending to second lien holders stating; banks cannot pursue for a deficiency judgment after a short sale, has made negotiating more difficult. Seconds such as Green Tree are wanting 13-15% of the unpaid balance instead of the traditional 10%.



Here are a few tips to help you avoid these types of circumstances BEFORE you take on a short sale transaction.



1. Pre-qualify your clients and ask the right questions. (Nothing is more frustrating than negotiating a file for a REALTOR who did not properly qualify their client.)



2. Compare the sellers circumstances with the HAFA guidelines to see if they most likely we be approved for the program. (You can find the HAFA guidelines on the Internet.)



2. What is the balance of the second lien?



3. Who is the second lien holder? (If you have a first and second with the same lender you most likely will be fine. If the liens are with two different lenders then you will need to call the second and find out if they are a participant in the HAFA program)



4. Find out what amount the second will expect to receive in order to allow the short sale to go through BEFORE you list the property or start negotiating the file.



5. If it is above the 10% you will need to set expectations with your seller before you decide to take the listing and explain they may have to contribute to the payoff of the second.



6. Determine if this is a qualified candidate for a short sale



6. Get everything in writing.



Nothing is worse than spending months on a file, jumping through hoops to save a deal for it to blow up at the end however; These are circumstances we can control. Taking the proper steps before hand will allow us to make the right choices and save time and energy instead of fighting a losing battle.



(Quote) “The most important thing in communication is hearing what isn’t said.



- Peter Drucker (1909-2005)







REALTORS, what is in your business plan this year? What are you doing to create a system that will allow you to build your short sale business? How often are you out there prospecting and how do you know if you are taking the listings that are going to be successful and not a waste of your time?











Call us today and let us show you a system that works to help you expand your business and effectively and efficiently close short sale transactions.



LOTUS REALTY GROUP



PROFESSIONAL SHORT SALE NEGOTIATORS







At Lotus Realty GROUP, helping people ethically succeed is at the forefront of who we