Notes from the MAR Legal Hotline
Steve Ryan, MAR General Counsel
Michael McDonagh, MAR Associate Counsel
Q. What is the new HAFA Short Sales Program and how will it help homeowner’s facing difficulty paying their mortgage or expect problems in the future?
A. In 2009, the U.S. Treasury Department introduced the Home Affordability Foreclosure Alternatives (“HAFA”) program to provide a viable option for homeowners who are unable to keep their homes. The HAFA program took effect on April 5, 2010 and sunsets on December 31, 2012.
HAFA is a program primarily designed for homeowners who are unable to stay in their home even with a loan modification under the Home Affordable Modification Program (HAMP). Under HAFA, homeowners may be able to avoid a foreclosure by selling the home as a “short sale” (where the value of the home is less than the remaining amount of the mortgage) or by transferring title to the lender through a process called a “deed-in-lieu of foreclosure.”
Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
Uses standard processes, documents, and timeframes/deadlines.
Provides financial incentives: $3,000 for borrower relocation assistance; $1,500 for mortgage servicers to cover administrative and processing costs; and up to a $2,000 match for mortgage investors for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders (up to 6 percent of the remaining balance of each junior lien).
Requires all servicers participating in Home Affordable Modification Program or “HAMP” to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
For more information on the HAFA Short Sales program, visit, www.realtor.org and click on “Short Sales.”
Q. Will the 3.8% “Medicare surcharge” tax apply to any part of the gain on the sale of a principal residence?
A. There have been some questions raised recently regarding the new federal healthcare law and whether it creates a 3.8% sales tax on the sale of one’s home. While the new law does create a “Medicare surcharge” of 3.8% on unearned net investment income for singles with an adjusted gross income (AGI) over $200k and married couples with an AGI over $250k, the capital gains exclusions for the sale of one’s principal residence of $250K of gain for singles and $500k of gain for married couples would still apply. The new Medicare tax would apply only to any gain realized that is more than the $250K/$500K existing primary home exclusion (known as the “taxable gain”), and only if the seller has AGI above the $200K/$250K AGI thresholds.
So, for example, if the taxable gain was $30,000 and a married couple had AGI (which would include the taxable gain) of $180,000, the 3.8% tax would not apply because AGI is less than $250,000. If that same couple had AGI of $290,000, then the application of the 3.8% tax would be subject to the same formula described above. The $30,000 taxable gain on the sale would be less than the $40,000 excess above $250,000 AGI, so the $30,000 gain would be subject to the new 3.8% tax.
For the complete NAR Q&A visit www.realtor.org.