BAC HAFA (LRC) Neg claims NO ONE can contribute to the 2nd's loss/MAX "allowed" (from ANYONE) = $6k!

Hello Experts -


I just reread the SSA as well as the HAFA "eligibility criteria" etc on the MHA website.  It is my understanding that it is the responsibility of the homeowner to "negotiate the release" of other liens BUT I am not finding a prohibition that precludes either the seller, buyer or agents from contributing funds to the 2nd lien.


Below is a quote ver batim (sp?) (copied directly from Equator) from the Neg at LRC:


"As I explained, HAFA regulations stipulate that the 2nd lien holder will only recieve $6000, and no one -- not the seller, not the buyer, not the agent -- may contribute funds to the second. Please tell the lender to provide the release letter quickly to avoid this file being closed. Thank you."


Aside from not reading this interpretation anywhere, it doesn't make any logical sense that the homeowner would miss out on the $3k moving money simply because the 2nd is requiring more than $6k.  Now I realize that applying "logic" to short situations is "counterproductive" BUT..........!


Can a couple of you Rock Stars confirm my suspician that this Neg is mistaken or alternatively point me in the direction of the website that confirms the Neg's interpretation?


As an aside, any random suggestions on getting the 2nd (Popular) to move off their 10% guideline?  The principle balance is $142k so I'm $8k short $14 - $6 = $8k) & the buyer is pretty tight on closing $$ as it is.


p.s. I'm not sure I picked the correct category for my post....


Thanks so much Everyone!!


Happy Independence Day US!!


Leslie Zieminski - 949.388.1310

Orange County, CA

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It is up to the investor.  Mistake one is having a buyer with no extra cash knowing that you had a second that would require 10%. Your only recourse is to negotiate with Popular, but if they are a HELOC it won't work because they don't care if it forecloses, they keep their collection rights against the seller either way. Either that or decline the HAFA and go for a traditional short sale, which may have different guidelines.  This is another reason HAFA is a waste of time if you have a HELOC involved.

Thanks for your post Joseph!  I have a couple follow-up questions:

1.  It is up to which investor?  I thought the HAFA guidelines were uniform for all participating investors.

2.  I am not the listing agent on this file.  I am only facilitating the short sale and the buyer was already under contract when the file came to me.  As a rule, I agree that it imperative that the buyer have some extra cash available to make the deal work.

3.  Back to my main question - do the HAFA regs stipulate that NO ONE may contribute funds to the 2nd?


Thanks so much Joseph!  I think this thread is in the wrong category.  Should I repost it under the HAFA group?


Leslie - 949.388.1310

Orange County, CA

HAFA guidelines compel the LENDER (servicer) to act, NOT the INVESTOR.  This is why HAFA failed, it went after the wrong entities.  I do not believe it is in the actual HAFA guidelines.


Hi Joseph -


Above is the link to Supplemental Directive 09-09 Revised.  Also, attached is page 11 regarding "Release of Subordinate Liens".  After analyzing these 3 paragraphs exhaustively, I find that I cannot disprove the HAFA Neg's assertion that:


"the 2nd lien holder will only recieve $6000, and no one -- not the seller, not the buyer, not the agent -- may contribute funds to the second"


Also, because the directive is so poorly & imprecisely written, I'm not even sure the seller/borrower can agree to $6k plus a Prom Note because the subordinate lien holder is "requiring" more than $6k for "lien release and full release of borrower liability."  There is a potential argument that the 2nd is releasing the seller/borrower from liability under THIS note/lien (& replacing it with a new note - arguably consideration but not a "contribution").


At this point, I'm thinking my action plan for this file is the following; in order:


1.  See if the 2nd will accept $6k as payment in full for a note with a principle balance of $140k+;

2.  Confirm that the seller/borrower is planning to file BK and then see if I can slide the $6k plus prom note approval letter past the BAC/LRC Neg; and

3.  As a last resort, throw in the towel on the HAFA program for this file, try to explain to the seller/borrower why they won't be getting their $3k in moving money, process the file as a traditional short sale and find a buyer with an extra $8k (more like $10k since the 1st won't allocate $6k to the 2nd since they won't be getting the $2k in HAFA funds) available to contribute to the junior lien.


All comments/suggestions welcome!  Thanks!


Leslie - 949.388.1310

Orange County, CA





Leslie, HAFA will not allow a deficiency, so a prom note is not an option.  per the directive:

"Subordinate mortgage/lien holder(s) may not require contributions from either the real estate agent or borrower as a condition for releasing its lien and releasing the borrower from personal liability. In addition, any payments to subordinate mortgage/lien holder(s) related to the short sale or DIL must be reflected on the HUD-1 Settlement Statement, as applicable."


This is clear to me: No contribution can come from seller side.  HAFA purposely left out a contribution from buyer because it is allowed.  This is why they require any payments to subordinate lien to be on HUD.


Send this to your negotiator and tell them they are wrong, escalate to management if needed.



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