Understanding How a HAFA Deed-in-Lieu of Foreclosure Works

Some homeowners who are facing foreclosure in tough economic times may be looking at modern government initiatives including the Home Affordable Foreclosure Alternatives or HAFA for dealing with some of the problematic aspects of losing a home. HAFA is part of a greater set of programs aimed at helping out mortgage holders who have trouble paying off their homes and may owe more than the property is worth.

Understanding the Home Affordable Foreclosure Alternatives Program

The Home Affordable Foreclosure Alternatives program is made to help homeowners who could not get loan modification or refinancing deals through other associated government programs. With HAFA, the government sets up and incentivizes two options: one is a short sale of the property, the other is a deed in lieu of foreclosure or DIL. Both of these help to minimize the negative impact of a foreclosure in terms of the borrower’s credit situation.

The HAFA Deed in Lieu of Foreclosure

With the HAFA a deed in lieu of foreclosure procedure, according to industry resources, the government offers “bonuses” to both the lender and the homeowner in order to add incentives for making the deal. The basic agreement is that, in a HAFA a deed in lieu of foreclosure, the homeowner agrees to turn over the deed to the property back to the lender. In exchange, the former property owner is absolved of debt related to the mortgage. What this does for the borrower is wipe the slate clean on mortgage debt that may exceed the current value of the property. Without this kind of agreement, borrowers can be held responsible for excess value even if they lose the property because of nonpayment.

Certain conditions apply to the HAFA a deed in lieu of foreclosure process. Different deadlines and timelines restrict the adoption of this procedure for dealing with troubled mortgages.

Lenders and HAFA Deed in Lieu of Foreclosure Complications

One of the major complications in the HAFA DIL process is multiple lien holders. In a classic mortgage scenario, there is only one lender: the lender that financed the original mortgage. However, additional loans based on home-equity can complicate matters a good deal. During the term of the mortgage, some homeowners have been encouraged to take out home equity loans or HELOCs (home equity lines of credit) in order to get more cash in hand. If these loans exist, the homeowner has to facilitate the dropping of additional liens by secondary lenders in order to complete the HAFA process.

Even though the borrower still loses their property in a a deed in lieu of foreclosure, this program does offer some important services to those who cannot afford to stay in their homes. The main benefit is that families and individuals will not incur bad credit if they successfully complete this alternative to foreclosure. Those who are in bad mortgages can find out more from the government offices that facilitate HAFA and other parts of the Make Home Affordable program that sets up refinancing and loan modification to help more Americans stay in their homes or, alternately, find a way out of a messy home loan.