I recently met with a real estate professional called Robert Malakouti. Mr. Malakouti is a short sale expert who told me he has completed 2500 short sale transactions since 1991. This is a massive number of short sale transactions…given most people had never heard the words ‘short sale’ until about 2 years ago when the housing crisis forced many to consider home exit options outside foreclosure. I was keen to meet a practitioner with this much experience in a relatively new and innovative segment of the real estate market – short sales.
I am an expert in the Home Affordable Foreclosure Alternatives (HAFA) program created by Treasury and mandated for implementation this year by 105+ servicers administering 90+% loans nationwide (Disclosure: I proposed a HAFA-like program to federal officials in early 2009 and my company AssetPlanUSA offers a HAFA Education and Certification program for real estate professionals).
I went to Mr. Malakouti’s office upon hearing he had closed several HAFA transactions. He was one of the first to do so since HAFA is still relatively new in the marketplace. I believe the best intelligence and insight about a program often comes from analyzing facts on individual deals under that program…and my meeting with Mr. Malakouti reinforced this belief.
Mr. Malakouti has a deep knowledge of short sales and HAFA and has drafted a memo for real estate professionals, lenders, and policy makers regarding HAFA. Here is his memo, verbatim for your convenience, along with a picture of Robert. ray
Early insights and critical feedback on HAFA by Robert Malakouti:
We have two type of HAFA short sale:
RASS (Request for approval of Short Sale). This type of HAFA Short Sale is initiated by the lenders. We are not talking about this type of HAFA in this article. Most of the Banks are not using the RASS HAFA short sale at this time.
ARASS (Alternate Request For Short Sale Approval). This type of HAFA Short Sale is when the property is already listed for short sale and the listing agent asks the lender to use HAFA guidelines for short sale. In this article we will discuss problems and short comings of the current HAFA guidelines.
1-Initiating ARASS HAFA. On my first HAFA short sale with SLS, I had really hard time processing my short sale request using HAFA (ARASS). It took almost 6 weeks before my request was accepted. I have two other short sale files that I am using HAFA for right now. I have been doing regular short sales for the past 19 years. Most of the Banks have not set up their HAFA programs yet or they are not using it. The listing agent should insist to use HAFA. More than 100 lenders and servicers have signed up for HAFA. If the Bank is telling you that they have not signed up to do it, do not believe it, and tell them that almost every lender and servicer has signed up. Tell the Bank that any lender or servicer who has signed up for HAMP (Home Affordable Modification Program) has also signed up for HAFA.
2- Borrower relocation money ($3,000). Right now most of HAFA short Sale is real estate agent initiated ARASS (Alternative Request for approval of Short Sale ). Later on, the banks will approach the sellers for
RASS (Request for approval of short sale). Agent should not forget to put $3000 fee of relocation in RASS or ARASS Form and of course on HUD1.
3- Second Lien problem. Right now the HAFA short sale will not pay more than $6,000 to get second lien release. Some Banks like Chase that are holding a second lien and the first lien holder is another bank, will not accept $6000 dollars to release their lien if they have sent the file to recovery (in house or out of the house collection agencies). This creates a huge problem in timing co-ordination of getting approval from both first and second lien-holders and closing. Some Banks including Chase still in their approval for second lien short pay off are holding the barrower in owner occupied cases liable for balance deficiency.
4- PMI. PMI is a big hurdle. It takes almost 4 weeks to get approval from PMI
5- Investor approval takes up to 15 days.
6- Title. The HAFA does not pay for delinquent HOA Fees and asks for sellers to provide clear title. I have not had any problems in my 3 HAFA deals at this point, but practically any bank can ask the seller to pay delinquent taxes (Requires that borrowers provide clear and marketable title)
7- Time line. Bank did not follow the time line in ARASS cases that I had. It did take almost 75 days to get ARASS approved.
Policy Suggestions:
IF HAFA IS GOING TO BE SUCCESSFUL THEN BANKS SHOULD FOLLOW A GUIDELINE WHERE SHORT SALE IS TREATED THE SAME WAY AS BANK OWNED PROPERTIES:
1- AS SOON AS THE HOMEWONER IS BEHIND THE PAYMENTS, BANK SHOULD SEND THEM A PRELIMINARY FINANCIAL EVALUATION FORM OUTLININNG ALL AVAILABLE ALTERNATIVES TO THEM. IF THE BORROWER IS NOT QUALIFIED FOR HAMP, THEN BANK SHOULD SEND THEM SHORT SALE AGREEMENT FOR RASS.
2- AS SOON AS SHORT SALE AGREEMENT IS SIGNED BY THE HOMEOWNER THEN THE BANK GETS ALL NECESSARY APPROVAL FROM INVESTOR AND PMI IF NECESSARY.
3- SECOND LIEN HOLDER MUST COMPLY WITH HAFA GUIDELINES AND MUST ACCEPT THE AMOUNT WHICH IS PERMITTED UNDER HAFA GUIDELINES. WE NEED SPECIAL FORM TO BE FILLED OUT BY THE FIRST LIEN HOLDER AND BE SENT TO THE SECOND LIEN HOLDER DEMANDING THAT SECOND LIEN HOLDER TO ACCEPT THE AMOUNT WHICH IS AUTHORIZED TO BE PAID TO THE SECOND LIEN HOLDER ACCORDING TO THE HAFA GUIDLINES.
4-CLEANING THE TITLE BY THE HOMEOWNER SHOULD BE REMOVED FROM THE GUIDELINES. IF THE BORROWER HAS TO CLEAN THE TITLE THEN WHO HAS TO PAY FOR DELIQUENT TAXES AND HOA LIEN. I THINK THESE TWO ITEMS SHOULD BE EXAMPT.
5-THERE SHOULD BE A LIST OF BANKS AND SERVICERS THAT HAVE SIGNED ON HAFA IN TREASURY OFFICIAL WEB SITE.
6- WHO IS PAYING FOR A TAX LIEN ON THE TITLE (IRS TAX LIEN)?
THIS APPROACH IS THE ONLY WAY THAT WE CAN HAVE SPEEDY HAFA AND CONTROL DAMAGE TO THE LENDERS. IF HAFA GUIDLINE IS CORRECTED,THEN WE WOULD HAVE VERY FEW FORECLOSURES AND BANKS DO NOT HAVE TO DEAL WITH COSTLY AND RISKY FORECLOSURES AND WILL NOT HAVE TO DEAL WITH REO PROPERTIES ANY MORE. SHORT SALE IS MORE COST EFFECTIVE AND INVOLVES LESS RISK AND LIABILITY FOR LENDERS. HAVING SAID ALL OF THE ABOVE, HAFA IS MUCH BETTER THAN REGULAR SHORT SALES. I STRONGLY RECOMMAND THAT EVERY AGENT WHO IS DOING SHORT SALE SHOULD TAKE CAR HAFA CERTIFICATION COURSE.
