December 31, 2016, marked the end of many programs designed to help people in foreclosure: HAMP (Home Affordable Modification Program), HAFA (Home Affordable Foreclosure Alternatives), HARP (Home Affordable Refinance Program) and MDRA (Mortgage Debt Relief Act).
What did we lose and what are the alternatives now that they're gone?
HAMP provided loan modification incentives to borrowers and lenders, and provided a structure for loan servicing companies to solicit, review and provide loan modifications. Most lenders had, and still have today, their own "internal" loan modification programs, many of which modeled the criteria of HAMP. These programs, presumably, still exist today so the loss of HAMP may prove negligible as it merely reduces the modification programs available.
HAFA provided incentives to borrowers and lenders seeking a short sale of the property. In most cases, HAFA provided "relocation incentive" which I've seen as low as $1,000 and as high as $25,000, to help offset the cost of moving for families facing a short sale. Another benefit of HAFA was that it guaranteed a waiver of deficiency on the mortgage (and required junior lie holders like second mortgages, judgments, etc. to waive deficiency too). As with HAMP, some lenders and services provide an "internal" program that mirrors HAFA, but not in every case. Therefore, I expect to see less short sales that include deficiency forgiveness and relocation incentive.
HARP provided incentives to borrowers and services to refinance existing loans regardless of whether the loan was more or less than the value of the home. The main requirement to apply for HARP was that the borrower was current on payments for at least the 12 months prior to the application. Unfortunately, with the loss of HARP, I think a refinance of a home that is upside down (the borrower owes more than the value of the house) is impossible, thus these people will be forced to pay mortgage payments, or short sell the home.
The mortgage debt relief act (MDRA) excluded forgiveness of debt income, so that a waiver of deficiency in a short sale of a primary residence where the loan was used to buy or improve the house is not taxable. There are other ways to eliminate forgiveness of debt income - sometimes called phantom income - but that is an analysis to be undertaken by a CPA or Tax Attorney (and it its own separate blog post). Unfortunately, with the loss of the MDRA, I have a feeling many more homeowners will owe the IRS after completing a short sale, but this is a case by case analysis.
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Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.