Types of Short Sale Programs
There are number of short sale programs from which you can choose. If you choose the wrong short sale program, not only might your short sale get rejected, but you might wish you had never chosen that particular short sale program. It is better to explore your options before starting the short sale. Please keep in mind that some options are not available to you when looking at different types of short sale programs. The program you select may depend partially or totally on your particular type or loan and investor you are working with.
VA Short Sale and FHA Short Sale
You have a VA loan if your loan is guaranteed by VA. If you loan is insured by HAFA then it is HAFA loan. An easy way to determine if a loan is VA or FHA is to look at the percentage of original sales price. If your initial loan balance is 100% of the original sales price, your loan is most likely VA. If the loan balance was originally closer to 97% of the original sales price, it is probably an FHA loan.
The main things to know about a VA short sale or an FHA short sale are:
- Neither type of loan will qualify for the HAFA short sale program, but you can receive a relocation incentive.
- They will take longer than usual to get approval because of the additional layer to approve.
- The government will pay for a full-blown appraisal (no BPO) and expect market value.
HAFA Short Sale Programs
If your loan is financed by more than two lenders than all the lenders must participate in the HAFA program in order for you to qualify for a HAFA short sale. The HAFA program is a government program and may pay up to $3,000 to do the short sale and pay your bank too.
The HAFA program guidelines are softened somewhat over the years, but were very strict when initially set up. The biggest benefit is the banks must release you from personal liability, and there is no deficiency judgment after a HAFA short sale.
Fannie Mae Short Sale
Fannie Mae is a government-sponsored entity. You will require to do a Fannie Mae short sale if Fannie Mae is the investor for your loan. This will add an additional layer of approval to the short sale process and will take more time to close. You would need to deal with the second lender before you open the short sale at Fannie Mae. Fannie Mae is also known for delaying the short sale auction. If you are closer to the trustee’s auction than you are to closing the short sale, Fannie Mae is apt to choose the foreclosure.
Freddie Mac Short Sale
Freddie Mac is Fannie Mae’s cousin and also a government-sponsored entity. If Freddie Mac is the investor for your loan you will need to do a Freddie Mac short sale. This will add an extra layer of approval to the short sale process.
Freddie Mac will require an arms-length affidavit. The home will be sold in its “as is” condition. Freddie Mac will allow the seller to rent back for a few months, unlike many short sale investors.
Fannie Mae HAFA Short Sale
Fannie Mae HAFA short sale probably the most complex of all short sale programs. The government has instigated guidelines over the years to make the processing of this type of short sale a bit easier. It is possible the short sale will be delayed much longer than many find is acceptable if your Fannie Mae HAFA short sale is through Bank of America. You will probably have a better experience if you occupy the home as your principal residence, but Fannie Mae no longer requires occupancy as a condition of the short sale. It is also no longer a requirement that your loan be delinquent.
Freddie Mac HAFA Short Sale
Freddie Mac short sale requires the advance approval of short sale and this is the biggest problem for some banks such as CitiMortgage. CitiMortgage will appear ill-equipped to handle a Freddie Mac HAFA short sale. A huge number of lawyers and short sale agents try to do the Freddie Mac short sale, but the success ratio is really low. Not very bank seems to understand this preapproval requirement for a Freddie Mac HAFA short sale. But once your short sale is approved by Freddie Mac and the services, the short sale process moves very quickly. You can expect to get approval within 30 to 60 days.
Traditional Short Sale
A traditional short sale is the most common type of short sale program. Some short sale sellers don’t want the delays that can be inherent in government programs, so even though they might qualify for a Bank of America HAFA short sale, for example, they might opt for a traditional short sale just to get the process wrapped up in a reasonable time frame.
Most banks and credit unions will offer a traditional short sale. You will need to supply financials, tax returns and generally document a hardship through a formal hardship letter, but the process is actually pretty painless. More and more banks will say yes to a short sale and no to a foreclosure. The worry people harbor about a short sale being rejected is generally unfounded, unless, of course, they plan to buy and bail.
Cash for Short Sale Programs
Everybody wants cash for a short sale, it seems. Paramount is whether the debt is forgiven and the seller released from personal liability, but some people want the cash more. The best way to figure out if you can get cash for a short sale is to ask your bank about it.
Probably the best known cash-for-short-sale programs are the Bank of America Cooperative Short Sale or the Bank of America HIN Incentive program. I’ve had sellers qualify for both types of Bank of America short sales and get paid from both. Generally, the benefits are:
1) No hardship letter
2) No financials
3) No tax returns