Last year the owner of a townhome at Ocean Pointe contacted me about selling. He was military, bought in 2005 and very much upside-down in value. He bought his Ke Aina Kai two bedroom plus den, two and a half bath townhome with a two car garage for $425,000 six years ago. By 2010 it was worth about $275,000. Luckily, the owner met the requirements to get a HAP Sale.
What's a HAP Sale?
Basically, the Federal government covers the shortfall between what the seller owes and the current market value. The HAP program is available to federal employees, including military service personnel (Active or Retired) if they were PCS-ed.
Expanded HAP benefits are available for wounded, injured or ill members of the armed forces. The benefits are also available for surviving spouses.
Okay let's have some definitions:
- HAP - Homeowners Assistance Program.
- PCS - Permanent Change of Station. This means a person was orded to move to a different location (base).
Getting back to our Ocean Pointe townhome sale, the owner met the HAP eligibility requirements and we got started by completing the HAP application. It took several weeks for the HAP office to get back to us (they are busy). Essentially, they said the documentation looked fine and to get an offer.
We listed the townhome and got to work! Unfortunately the tenant was not thrilled about the place being sold and she restricted our showings. That's okay, we got a solid offer and submitted it to HAP.
VA Loans and HAP Sales
One might think that the HAP program would favor VA loans (since the buyers are military or ex-military). I thought so too. That turned out not to be the case. The prospective buyer was a young guy with not much money in the bank. A common practice in these cases is for the buyer to offer a given amount and then ask for a credit from the seller to cover the buyer's closing costs.
The HAP office employee was okay with the credits. Then she went on leave and her supervisor took over the file. The supervisor reviewed it and informed us certain items were not allowed to be credited. We adjusted for this and then the seller had to bring some money to the table. Not a lot compared to the $145,000+ decline in market value, still it was several thousand dollars. The seller was willing and able to do so.
As we neared closing the transaction, another person at the HAP office reviewed the file. He determined that some of the previously dissallowed credits were indeed allowable. So the seller was going to get some of his money back.
If the buyer was not VA, the odds are there would not have been a credit and the deal would have closed sooner.
HAP Sale Lessons
- For future sales we won't automatically rule out VA buyers, however we have developed certain language to include in the contract, to reduce the odds of the seller having to pay a large amount at closing. Note: HAP does not cover all costs and a seller will normally have to pay some money out at closing. The seller will not walk away from this without incurring some costs.
- Work with an experienced broker, agent and/or escrow officer on a HAP Sale. This was my first HAP sale, luckily I had the assistance of my broker and the escrow officer who had done HAP sales in the past. The escrow officer was tremendously helpful and she was actually doing most of the interaction with the HAP office.
Why a HAP Sale?
Not everyone is willing and able to wait for our market to recover. In our owner's case, he retired from the military and had no intention of moving back to Hawaii. HAP was the best way for him to sell and carry on with his life.
By the way the HAP assistance payment is not taxable. That will save the owner even more money!
HAP Sale Versus Short Sale
With a HAP sale, the seller is not normally delinquent on his loan and the loan gets paid in full at closing. With short sales, the seller IS delinquent on the loan and the seller is seeking debt forgiveness from his lender.
Some sales are combination of HAP and short sales.
If you're considering a HAP Sale, please contact us.
Aloha, Mike
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