Real estate specialist Kris Darney on Thursday walks through a Rancho Cucamonga home whose owners are hoping it will be purchased in a short sale instead of being lost to foreclosure. (Mediha Fejzagic DiMartino/Staff Photographer)

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Feds aim to ease pain

New U.S. program to start Monday
Sandra Emerson, Staff Writer
Created: 04/03/2010 07:08:53 AM PDT

Short sales have become more appealing to homeowners who are underwater on their mortgage and are looking to get out without going into foreclosure. But the time it takes to process these type of sales has been thought of as long rather than short.
A new federal program goes into effect Monday and will provide more guidelines to allow the stressed homeowners to enter into a short sale and more quickly get on their way to a more affordable living arrangement.

The Home Affordable Foreclosure Alternatives program will provide certain incentives to lenders, and to home owners who chose to do a short sale, rather than wait until the bank takes the property.

The program is part of the Home Affordable Modification

Real estate specialist Kris Darney on Thursday walks through a Rancho Cucamonga home whose owners are hoping it will be purchased in a short sale instead of being lost to foreclosure. (Mediha Fejzagic DiMartino/Staff Photographer)
Program, which was implemented in February 2009 to modify homeowners’ loans to avoid foreclosure. Both programs are funded through $50 billion from the bank bailout.
The government “wanted to basically create a streamlined process as an alternative to the foreclosures going on right now,” said Kris Darney, an Ontario-based real estate, short sale, loss mitigation specialist with his wife Kim Darney.

“Of course short sales have gotten a bad rap.”

Darney counted 3,500 short sales on the market in the Inland Empire as of Tuesday.

Due to the high volume of offers made on short sales, banks can take months to respond. Discouraged buyers will often drop out of the offer.

Timelines have been put into place through the new program in order to speed up the short sale process.

The short sale transaction must be completed within 120 days. The time can be extended up to 12 months if necessary.

Short sales take up to six to nine months to get approved, Kris Darney said.

“It’s getting reduced to 10 days, so a bank will have to give a response to a buyer’s offer within 10 days,” Kris Darney said. “It may not be an approval, it may be a rejection or it may be a counter offer.”

Through HAFA, lenders will be required to give the homeowner preapproved short sale terms before going to market. This will include a listing price and an amount of sale proceeds the lender is will to accept.

“What this new program is doing is streamlining the process and allowing for all banks to have consistent forms and a consistent number of items that can be requested,” Darney said.

With a short sale, a buyer will make an offer and the lender will have to review it and respond, said Raffi Tal, chief operating officer for I Short Sale, a Los Angeles-based short sale and loss mitigation firm.

“Everything has to go to the investor, Fannie (Mae)or Freddie Mac), that’s why the sale is stretching the process by at least two months,” Tal said. “Every little change has to go through the investor.”

Banks are not required to participate, but Dustin Hobbs, communications director for the California Mortgage Bankers Association, said most banks will likely participate.

“Everyone is realistic in the sense there is no silver bullet, not one program that is going to come along and solve everyone’s problem,” Hobbs said. “I think everyone is optimistic that this program will help and will be another tool in the toolbox for service to help homeowners.”

Homeowners can receive up to $3,000 to pay for moving costs after the sale is completed.

“It’s the government’s way of offering a little bit of help, a soft landing to allow you to hire a moving van or rent a U-Haul truck, help with first months rent payments,” Sorensen said.

The servicer, the organization responsible for collecting monthly loan payments, will receive up to $1,500 per short sale to cover administrative fees.

The program only applies to homeowners with one mortgage.

Many people in Southern California took out second mortgages on their homes either because they needed the money or wanted to make large purchases, said Laurel Miller Starks, a real estate agent with Keller Williams Realty in Rancho Cucamonga.

“So you might have a first mortgage that gets approved and can close very quickly, but then you’ve got this second mortgage hanging around that may take a long time,” Starks said.

The actual impacts of the program may not be seen for a few more months, said Kim Darney.

“We won’t see it overnight, but I think we’ll see a decrease in foreclosures because I believe a lot of banks are going to hold off on processing foreclosures while getting acclimated to this process,” Kim Darney said.

The program will not be automatic. Homeowners have to call their lender to request a short sale through HAFA.

Banks may be inundated with calls once the program starts Monday.

Kim and Kris Darney have already been getting calls from homeowners who have heard the program is coming.

“It’s really a wonderful thing being afforded to us as Americans right now,” Kris Darney said. “I know there’s a lot of naysayers out there, but if 10 percent of the homes are impacted by HAFA it’s a phenomenal result, it’s actually a phenomenal result.”

Why Short Sale?

Entering into a short sale agreement provides more benefits to homeowners than foreclosure, on which the HAFA program is attempting to capitalize.

Chris Sorensen, a former mortgage banker and founder of the non-profit Homeownership Education Learning Program, works with many homeowners who are behind on their payments and aren’t sure what to do.

Many of the people he meets are already leaning toward a short sale but are still unsure why.

“Those people want to know what’s in it for them,” Sorensen said. “How does this impact their credit good and bad? They want to know will this satisfy my lender for any further action against them. They want to know what are the tax ramifications surrounding short sales and foreclosure. And they want to know, believe it or not, this is very important, they want to know `when will I be able to buy again?’ ”

Upon the closing of a short sale through the HAFA program, the homeowner will be released from all liability for the debt of the first mortgage.

However that does not necessarily protect them from the tax ramifications, Sorensen said.

“The benefits of HAFA is that it requires the lender to disclose this fact that by cooperating in pre-foreclosure or a short sale may have tax implications,” Sorensen said.

Through HAFA lenders are required to divulge all information relating to tax consequences and credit score impact to the homeowners considering a short sale.

“It is now being required that lenders disclose that there are serious tax implications when one cooperates in a short sale or losing their home to foreclosure,” Sorensen said. “That now must be disclosed in writing for the first time ever.”

The homeowner will take a hit to their credit score, but not as much as with a foreclosure, Starks said.

“A short sale is not going to lower a credit score nearly like what a foreclosure will. A foreclosure can be a few hundred points. Usually a short sale is 100 or less,” Starks said.

Homeowners can recover from a short sale more quickly and can often head out to purchase a new home in a couple of years, Starks said.

Banks also view short sales as a more favorable option over foreclosures.

On average, a bank will lose up to 40 percent on a foreclosed loan, but up to 19 percent on a short sale, Sorensen said.

Short sales tend to have less of an impact on surrounding home values, Kris Darney said.

“The short sale is a much better impact on the neighborhood because the short sale property value will be more in-line with the current market value,” Kris Darney said. “It will not have been bought at a rock-bottom price at an auction on the court house steps, which is what happens to may of these foreclosed homes.”

The HAFA program is expected to alleviate the burden of foreclosures on homeowners hoping to enter a regular home sale.

“It puts homeowners back into the community generating taxes again instead of another boarded up house,” Kim Darney said. “Every house that’s boarded up and foreclosed upon drops other home values up to $9,000 for each foreclosure.”

Homeowners eligible under HAMP must be considered for the HAFA program before the loan goes into foreclosure if the homeowner:

Does not quality for a Trial Period Plan. HAMP requires homeowners enter a Trial Period Plan for their modified mortgage before getting a modification.

Does not complete the Trial Period Plan.

Is delinquent on a HAMP modification by missing at least two consecutive payments.

Requests a short sale or deed in lieu.

Short sale process under HAFA:

Before a homeowner can be approved for a HAFA short sale, the lender must provide a listing price or a minimum amount it will accept for the sale.

A fixed termination date at least 120 days from the date the short sale agreement is given to the homeowner. The servicer may extend the agreement up to 12 months if agreed to by the homeowner.

Property must be listed with a licensed real estate professional who is regularly doing business in the community.

The servicer must determine the amount of closing costs and other expenses they will allow to be deducted from the gross sale proceeds. This must be a dollar amount, percentage of the list price or a list by category of reasonable costs.

The amount of the real estate agent’s commission must be determined and cannot exceed 6 percent of the contract sales price.

The homeowner will need to give a statement allowing the services to communicate the homeowner’s personal financial information to other parties as necessary to complete the transaction.

Cancellation and contingency clauses must be included in the listing notifying potential home buyers that the sale is subject to approval by the servicer and/or third parties.

The home buyer may not sell the property within 90 days of closing.

After the sale is completed, the homeowner is released from all liability for repayment of their first mortgage debt.

After the sale, the homeowner can receive up to $3,000 for moving costs.

The homeowner must be informed of income tax consequences and a possible hit to their credit score.

The homeowner’s mortgage payment during the short sale process cannot exceed 31 percent of their income.

As long as the homeowners follow the criteria for the short sale, the servicer will not send them to foreclosure.

Servicer can receive up to $1,500 to cover administrative and processing costs for the short sale or deed-in-lieu

SOURCE: U.S. Department of the Treasury

SHORT SALE: A homeowner can enter into a short sale when they owe more on their mortgage than the home is currently worth.

In a short sale, the servicer allows the homeowner to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage.

DEED-IN-LIEU OF FORECLOSURE: With a deed-in-lieu, the borrower voluntarily transfers ownership of the property to the servicer.

SERVICER: A mortgage servicer is responsible for collecting monthly loan payments as well as escrow accounts.

DELINQUENT: A homeowner is delinquent on their loan when they fail to make payments.

DEFAULT: A homeowner can default when they are unable to pay their debt.

FORECLOSURE: A foreclosure occurs when the homeowner’s right to the property is terminated. A home can be foreclosed upon when the homeowner defaults on their mortgage payments.

Annual total home sales
San Bernardino County

2007 20,544

2008 24,455

2009 35,625

Los Angeles County

2007 62,316

2008 60,683

2009 77,037


2007 863

2008 990

2009 1,447


2007 351

2008 266

2009 277

Riverside County

2007 29,952

2008 40,870

2009 49,115

Monthly total home sales



Los Angeles: 5,228

Riverside: 3,162

San Bernardino: 2,252


Los Angeles: 5,034

Riverside: 3,199

San Bernardino: 2,095



Los Angeles: 4,532

Riverside: 3,320

San Bernardino: 2,532


Los Angeles: 4,590

Riverside: 3,420

San Bernardino: 2,324


Los Angeles: 5,971

Riverside: 4,409

San Bernardino: 2,897


Los Angeles: 6,425

Riverside: 4,469

San Bernardino: 3,130


Los Angeles: 6,521

Riverside: 4,414

San Bernardino: 3,134


Los Angeles: 7,636

Riverside: 4,694

San Bernardino: 3,438


Los Angeles: 8,082

Riverside: 4,699

San Bernardino: 3,549


Los Angeles: 7,189

Riverside: 4,145

San Bernardino: 3,276


Los Angeles: 7,138

Riverside: 4,312

San Bernardino: 3,023


Los Angeles: 7,409

Riverside: 4,197

San Bernardino: 3,176


Los Angeles: 6,257

Riverside: 3,745

San Bernardino: 2,751


Los Angeles: 7,679

Riverside: 4,282

San Bernardino: 2,934



Los Angeles: 3,398

Riverside: 1,939

San Bernardino: 1,111


Los Angeles: 3,468

Riverside: 2,147

San Bernardino: 1,242


Los Angeles: 4,263

Riverside: 2,691

San Bernardino: 1,534


Los Angeles: 5,016

Riverside: 3,186

San Bernardino: 1,667


Los Angeles: 5,445

Riverside: 3,444

San Bernardino: 2,075


Los Angeles: 5,678

Riverside: 3,757

San Bernardino: 2,215


Los Angeles: 6,592

Riverside: 4,116

San Bernardino: 2,521


Los Angeles: 6,138

Riverside: 4,078

San Bernardino: 2,439


Los Angeles: 6,274

Riverside: 4,551

San Bernardino: 2,831


Los Angeles: 6,824

Riverside: 4,619

San Bernardino: 2,856


Los Angeles: 5,037

Riverside: 3,719

San Bernardino: 2,385


Los Angeles: 5,848

Riverside: 4,435

San Bernardino: 2,862



Los Angeles: 6,805

Riverside: 3,089

San Bernardino: 2,373


Los Angeles: 6,300

Riverside: 3,057

San Bernardino: 2,274


Los Angeles: 8,353

Riverside: 3,680

San Bernardino: 2,476


Los Angeles: 7,225

Riverside: 2,987

San Bernardino: 2,049


Los Angeles: 7,426

Riverside: 3,307

San Bernardino: 2,220


Los Angeles: 7,580

Riverside: 3,359

San Bernardino: 2,190


Los Angeles: 6,809

Riverside: 2,769

San Bernardino: 2,008


Los Angeles: 6,647

Riverside: 2,834

San Bernardino: 2,096


Los Angeles: 4,361

Riverside: 2,208

San Bernardino: 1,509


Los Angeles: 4,368

Riverside: 2,371

San Bernardino: 1,603


Los Angeles: 4,468

Riverside: 2,503

San Bernardino: 1,719


Los Angeles: 4,430

Riverside: 2,503

San Bernardino: 1,518

Monthly total home sales in Southern California





Jan. 15,227

Feb. – 15,231

March – 19,486

April – 20,514

May – 20,775

June – 23,262

July – 24,104

August – 21,502

Sept. – 21,539

Oct. – 23,745

Nov. – 19,181

Dec. – 22,328


Jan. – 9,983

Feb. – 10,777

March – 12,808

April – 15,615

May – 16,917

June – 17,424

July – 20,329

August – 19,366

Sept. – 20,497

Oct. – 21,532

Nov. – 16,720

Dec. – 19,926


Jan. – 18,128

Feb. – 17,680

March – 21,856

April – 19, 269

May – 19,874

June – 20,166

July – 17,867

August – 17,755

Sept. – 24,460

Oct. – 12,999

Nov. – 25,578

Dec. – 13,240

Out of the total home sales each month in Southern California a certain percentage were foreclosures. Here are the percentages for each month for the last three years:


Jan. – 42.1%

Feb. – 42.3%


Jan. – 60%

Feb. – 56.4%

March – 55.4%

April – 53.6%

May – 50.2%

June – 45.3%

July – 43.4%

August – 38.8%

Sept. – 40.4%

Oct. – 40.6%

Nov. – 39.1%

Dec. – 39.6%


Jan. – 29.6%

Feb. – 33.5%

March – 38%

April – 37.5%

May – 37.4%

June – 39.2%

July – 41.8%

August – 45.5%

Sept. – 50%

Oct. – 51%

Nov. – 54.6%

Dec. – 55.7%


April – 8%

May – 5.5%

June – 7.3%

July – 7.9%

August – 10%

Sept. – 12.6%

Oct. – 16%

Nov. – 18.8%

Dec. – 24.3%

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