Short sale and buy it back.   Short sale and stay in your home.   Who wouldn’t want to do that?  This definitely is very appealing to most homeowners who are underwater.  Is it really an option?  Is there a catch?  If it sounds too good to be true, is it???

On March 30, 2011, HAFA Supplemental Directive 11-02 clarified section 7.3 of Chapter IV of the Making Home Affordable Handbook regarding “Sales to Non-Profit Housing Organizations.”

Here is the language direct from this directive…..

‘Section 7.3 of Chapter IV requires that a short sale be an arm’s length transaction.  The supplemental directive amended this restriction to allow servicers the discretion to approve sales to non-profit organizations with the stated purpose that the property will be rented or resold to the borrower, so long as all other HAFA program requirements are met.  Servicers offering programs of this type must include program descriptions and conditions in their HAFA Policy.  Servicers must retain in the servicing and/or mortgage file the evidence provided during the HAFA evaluation demonstrating that the organization was a non-profit organization.  Under these circumstances, servicers must remove certain of the applicable “arm’s length transaction” requirements from the Request for Approval of Short Sale and the Alternative Request. “

Is this too good to be true?  Maybe.  You need to look at the details.  Here are some of the catches.

PROGRAM GOOD FOR HAFA SHORT SALES ONLY.  Many homeowners don’t qualify for HAFA.  This would not apply to FHA or VA loans.  Fannie and Freddie have their own programs and they require arm’s length affidavits.

SUBJECT TO APPROVAL BY THE SERVICER AND INVESTOR.   This basically means that even if you qualify for HAFA the servicer and the investor who own your loan would still have to approve the sale to a non-profit.  Key words here are “servicer’s discretion.”

WHY WOULD A NON-PROFIT WANT TO PURCHASE YOUR PROPERTY AND LEASE IT BACK TO YOU AFTER SEVERAL YEARS?  If the company is true “non-profit” they cannot earn a profit.  What is their incentive?  If you sell your home to a “non-profit” with the option to “buy it back” you will most likely be required to sign a 3 year lease.  Per HAFA guidelines you must rent for a minimum of three years before they will allow you to buy the home back.  Leases with the option to purchase or “lease options” are very complicated.  You need to be sure you know what you are getting into.  Who will pay for property maintenance?  What happens if you can’t get a mortgage approval at the end the three year term?  What happens if the market value of the property goes down?  How are your monthly payments applied to the purchase?

ATTORNEYS AND REALTORS OFFERING THESE PROGRAMS CAN’T GUARANTEE YOU WILL QUALIFY.  If you are considering working with an attorney or REALTOR who says they offer these programs be sure to read any agreements carefully.  The servicer has the right to decline the short sale.  If there is an upfront fee charged for this what type of refund will they offer if they can’t get you approved for this program.  If they won’t promise a refund you may want to reconsider.

NEVADA PASSES LEGISTLATION THAT SAYS BANKS CAN’T REQUIRE AN ARM’S LENGTH TRANSACTION.  With the passage of SB321 “Homeowner’s Bill of Rights” which takes affect 10/1/2013 Nevada law says that banks cannot require sellers to sign an arm’s length affidavit.  This is the document the banks use to help reduce fraud in short sales.  Legislation that passed in the 2011 that required banks to respond within a certain amount of time to short sale requests went largely unheard by the banks.  If they couldn’t meet the time frame they just declined the short sale.  In my opinion you will see the banks respond to this new legislation in the same way – a short sale decline.    Only time will tell.

Please call me for more information about your options.