Short Sale Eligibility
Short sale eligibility requirements vary by lender and available programs. Today, many homeowners struggling to avoid foreclosure are turning to the Home Affordable Foreclosure Alternative Program (HAFA) offered through the U.S. government.
HAFA short sale eligibility requirements are provided in detail at the Making Home Affordable website. In order to qualify, homeowners must undergo a financial audit to ensure they are ineligible for a trial mortgage modification under Home Affordable Modification Program (HAMP) or mortgage refinance under Home Affordable Mortgage Refinance (HARP).
Once borrowers are approved for real estate short sale under HAFA they are released from financial liability of their first mortgage once their property is sold. This is an advantage over other programs because many lenders hold borrowers financially accountable for deficiency amounts between the short sale amount and loan balance.
The first step to determine if real estate qualifies for HAFA is to contact the servicing lender. Most mortgage providers funnel troubled loans through a special division known as loss mitigation. Mortgagors are assigned to a bank loss mitigator who will work with them throughout the short sale process.
Lenders normally will first attempt to develop strategies that allow borrowers to remain in their home by offering a loan modification or mortgage forbearance. Borrowers who have been enrolled in mortgage modification, but defaulted with either a temporary or permanent modification they might be eligible for short selling under HAFA.
According to the Making Home Affordable website, borrowers must meet 5 short sale eligibility requirements including:
1. The property is used as the borrower's primary residence.
2. The balance owed against the first mortgage note must be less than $729,759.
3. The first mortgage note must have originated prior to January 1, 2009.
4. Monthly loan installments for the first mortgage must be more than 31-percent of borrower's gross income. Installments include principal, interest, property taxes, homeowner's insurance, and homeowner's association dues, if applicable).
5. Mortgagors must be experiencing severe financial hardship caused by extenuating circumstances such as unemployment, health problems, death of a spouse, or divorce.
Once banks issue short sale approval under HAFA they send a short sale agreement (SSA) contract to the mortgagor that includes:
1. The listing price approved by the mortgage lender.
2. The length of time in which the property will be listed for sale.
3. A payment in full agreement which releases borrowers from future mortgage liability.
4. The amount of monthly loan installments, if any, borrowers will be responsible for during the SSA.
5. An agreement stating the lender will not commence with foreclosure sale as long as borrowers comply with SSA terms.
6. Information about the relocation assistance program which offers borrowers up to $3,000 in relocation assistance funds.
Not all lenders participate in Home Affordable programs, but those that offer HAMP or HARP, but also offer HAFA. However, the protocol varies by lender and often causes substantial confusion for borrowers. Those who are confused about how these programs work or if they are not obtaining the results they expect may want to obtain housing counseling through HUD.
HUD housing counselors offer complimentary services to borrowers who cannot comply with mortgage loan obligations and those who want to avoid foreclosure. Mortgagors can call the Homeowner's HOPE Hotline at 1-888-995-HOPE or visit HopeNow.com to review available foreclosure prevention options.
We also encourage you to visit our short sale article library which provides additional information on Making Home Affordable Program; foreclosure prevention strategies; tips for selling short sale properties to real estate investors; and additional resources for learning more about short sale eligibility requirements and protocol.