DoD HAP & Short Sales

Among the questions I get from military families on the  DoD Homeowners Assistance Program (HAP) is why won’t DoD pay me directly for the money I lost on a short sale ?

First to clarify.   Why would an active duty military member undertaken a short sale instead of using the DoD HAP program in the first place?   The final approval for the DoD HAP program did not happen until Fall 2009.  Prior to then active duty military families, wounded warriors, surviving spouses and mandatory retirees had to complete a short sale or rent out their home in order to make a required PCS move.

The HAP program does allow for a qualified service member to apply for the program retroactively.  In the case of a short sale there are two possible scenarios.  If the lender held the qualified service member liable for a deficiency between the mortgage payoffs, often in the form of a promissory note, then a payment can be made directly to the lender to pay off that deficiency judgment.

If there was no deficiency and no on going financial liability then there will be no benefit paid to the lender or the service member.  A service member cannot profit from a prior short sale.

Work is underway to make clarifications and updates to the rules for the DoD HAP program that were original published in the Federal Registry in September 2009.  Those new updates should be published in January 2011.

In the meantime if you live in the Northern Virginia area and meet the current eligibility rules for HAP give me a call at 703-346-2213.  I’ve settled 20 HAP transactions this year, including both Government Acquisition sales and Private Sales and understand the process thoroughly.  Let me help you take advantage of the DoD HAP benefits to sell your home.

4 thoughts on “DoD HAP & Short Sales

  1. My realtor is proposing a short sale and HAP. It still seems fishy to me, but here is her logic. My house was worth 250,000 when I bought it and now is worth about 75,000 (Las Vegas). I had a large down payment so I owe only 133,000 of the original loan. She said if HAP doesn’t cover the whole amount due to availability of funds, the short sale could possibly account for the rest. I assume she only anticipates seeking a short sale if HAP doesn’t come through, but would I be out of luck if I completed a short sale first and then tried to use my HAP benefit to cover the remainder?

  2. If you are eligible for HAP benefits it may take awhile for your file to be processed but they would cover the difference between what you owe and current market value. It is my understanding HAP is working on “recovery funds” so processing is taking longer than before but files are being processed for the full benefit due not a partial amount. You didn’t say whether you were trying to undertake an augmented sale or an acquisition sale but either way both you and your buyer need to be willing to wait it out.

    I had one client who was given a 10K deficiency in a short sale. HAP came back later and paid a portion of the deficiency but we were told if it was zero they would not have provided any additional benefits. Obviously your situation may be different and the HAP regional office would be the final determinate of what you would be eligible for if you did a short sale and then tried to recovery additional funds. Good luck. I think the days of any funds available are numbered.

  3. My husband and I purchased a home with a VA loan in 2003 for 175k and put at least 20k into it. In 2007 we got PCS’d to Germany. We tried to sell the home but had no luck. We have rented the house for the last 5 years but now find the house empty (we are still trying to find renters) and are struggling to keep up with the mortgage. The home is now worth 138k and we owe 172k (we refinanced) so selling has been out of the question. We were considering a compromised sale but would going straight up HAP be better? We want to avoid foreclosure. Do we have to put the house on the market again before we can apply for benefits of the HAP? Also, my husband is now retired but is a DOD employee. Any advice would be GREATLY appreciated!

  4. Michelle-there are a lot of components to your question so I’ll see if I can break it down. Based on your original purchase date and PCS order dates you fall within the PCS HAP qualifications. In order to include the 20K of improvements to your prior fair market value (PFMV) you will need paid receipts for the work and it must qualify as an allowable improvement. The best way to know whether it is allowable is to look at what the IRS allows as home improvements. If when you refinanced you did not take any money out of the home for expenses not related to the home then you would likely still be eligible as well. If you took money out for buying a car, as an example, those funds would not qualify for HAP.

    My big question is your husband leaving the service. Was this a mandatory retirement or did he voluntarily retire? Though I think under the original rules in my first paragraph you would qualify the retirement could throw a wrench in the works. I always suggest my clients fill out their HAP application and submit it as quickly as possible to have it initially reviewed by the staff in Savannah. Once it is reviewed and your receive your initial pre-approval, then you can market your home for sale with a contingency for final HAP approval and funding.

    Hope this gives you a little guidance. Though the official word from HAP is the rule you could be in a good position to use HAP benefits. A VA Compromise Sale is not a bad alternative if you don’t qualify for HAP. Good luck.

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