Los Angeles Homeowners Facing Foreclosure Can Receive Government Assistance in the Short-Sale and Deed in Lieu of Foreclosure Processes
As the number of foreclosures in Los Angeles and the United States continues to increase, it is not surprising that the government has made multiple attempts to aid homeowners on the brink of foreclosure. However, through the Home Affordable Modification Program ("HAMP") and the Homeowners Affordable Foreclosure Alternative Program ("HAFA"), the government has yet to see the results that they have wanted. Of the two programs that will be discussed, our focus will be on HAFA and its new amendments. However, to begin, we must first understand the guidelines of HAMP, its predecessor.
HAMP is a governmental program designed to help homeowners avoid foreclosure by allowing them to modify their existing loans. A successful HAMP candidate could modify his/her existing mortgage payment to a more affordable monthly expense. HAMP has helped struggling homeowners avoid foreclosure by modifying their home loans to a level that is affordable for borrowers now and sustainable for them in the long run. The operating feature of HAMP is that it provides clear and consistent loan modification guidelines that the entire mortgage industry can use.
HAFA, also an alternative to foreclosure program, is aimed at complimenting HAMP. HAFA becomes effective in situations where the loan modification process under HAMP is not feasible and where the homeowner has previously satisfied the HAMP requirements. HAFA offers incentives for both the lender and homeowner through a short-sale (a real estate transaction in which the sale proceeds fall short of the balance owed on the property's loan) or a deed in lieu of foreclosure ("DIL") processes (DIL - a process in which the homeowner conveys all interest in a real property to the lender to satisfy a loan in default and avoid foreclosure proceedings). Since some homeowners feel that they can no longer afford their home, even with modified payments, HAFA offers an alternative to the devastating costs and effects of foreclosure for both the homeowner and lender.
So what's the dilemma? Although HAMP has aided some, HAFA has failed by a long-shot. After HAFA's enactment, only 661 HAFA short-sales have been completed nationwide in situations where loan modification process has failed or the homeowner cannot meet mortgage payments even after their mortgage payment has been modified. These results are a grim fraction of that anticipated by the United States Treasury Department and the Obama Administration.
In its previous form, HAFA operated to offer lenders and homeowners incentives to enter the short-sale or DIL processes. Benefits under HAFA included:
- Helping borrowers (current homeowners) denied a loan modification or who are unable to make payments even after their loan was modified.
- Requires lenders to provide borrowers pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
- Requires lenders to fully release borrowers from future financial liability for the first mortgage debt.
- The following financial assistance is offered:
- $3,000 for borrower relocation assistance
- $1,500 for servicers to cover administrative and processing costs;
- Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders.
A homeowner qualified for HAFA if (1) the transaction was the borrower's principal residence; (2) short-sale or DIL is proposed to satisfy a first-lien mortgage (3) there is serious delinquency and an unpaid balance under $729,750; and (3) the mortgage payment on the loan was over 31% of the individual's gross income. Participation in HAFA did not save the homeowner from losing his or her property, but helped minimize the effects of a foreclosure on the homeowner's credit report and avoided the substantial costs of foreclosure for the lender.
In response to the less than moderate results of the initial HAFA program, in February 1, 2011, the federal HAFA short-sale was amended to include more borrowers in the program. The most notable change in the HAFA program was the elimination of the debt to income hardship requirement for borrowers. Previously, in order to qualify for a HAFA short sale, the mortgage payment on the first mortgage had to exceed 31% of the seller's gross monthly income. The amended version of HAFA does away with this financial hardship requirement such that short sale sellers no longer need to meet the financial hardship ratio. In effect, the amended version of HAFA dramatically broadens the spectrum of borrowers who can qualify for the HAFA short sale program.
As we all know, every homeowner has different financial circumstances and options. However, it is imperative to know your rights under the HAMP and HAFA programs. If you or someone you know will or is currently facing a foreclosure action, they should consult with an experienced real estate attorney before making any decisions.
With offices in the Los Angeles area, conveniently located in Encino, Khansari Law Corp., APC is prepared to aggressively and effectively represent you in real estate litigation, landlord tenant matters and foreclosure defense. Khansari Law Corp., APC also provides broader services in the areas of Bankruptcy Law, Business/Commercial Law and Personal Injury Law. For more information about Khansari Law Corp., APC, please contact us or call for a consultation at (424) 248-6610.