Important HAP Information
HAP GAPS (Government Assisted Private Sale) ENDS
If you are an Eglin Air Force Base or Hurlburt Field seller thinking about HAP, (military Homeowners Assistance Program), you may not be aware that effective February 1, the GAPS (Government Assisted Private Sale) has ended. Since we are talking “military”, there are a lot of acronyms, so I’ll start with a quick explanation. HAP is the program run by the Army Corps of Engineers that was expanded to assists U.S. military service members who have Permanent Change of Station (PCS) assignments, with “upside down mortgages” avoid foreclosure or short sale. Basically, HAP will cover the shortfall (part of mortgage balance left over after net proceeds from sale) at closing if the service member qualifies for the program.
Formerly, there were three types of HAP sales: Government Acquisition, Private Sale, and Government Assisted Private Sale (GASP). Here is a quick, simplified explanation of each:
Government Acquisition: The U.S. will buy the subject property from the qualifying service member, and simultaneously pay off the mortgage balance not covered by the sale, selling the property to the buyer the service member found (normally through his Realtor).
Private Sale: The qualifying service member sells his home and covers the mortgage shortfall himself. The U.S. will reimburse the service member some time after closing. The reimbursement calculation is simplified as: 90% of your prior fair market value (your purchase price plus costs of improvements), add 7% for closing costs, then subtract out your new purchase price and mortgage payoff, plus any buyer credits and actual closing costs. Using this private sale method, some military members can recoup more of their lost equity, dollars they have actually used for downpayment or improvements, as compared to the Government Acquisition, which will just pay off the mortgage deficit. The caveat with Private Sale, is that you would have to cover the entire shortfall at closing, then “wait” for the U.S. reimbursement check. That process can takes weeks or months.
Government Assisted Private Sale (ended): Instead of waiting for your U.S. reimbursement check after a “Private Sale”, you were paid by the Government at closing. This program has ended, effective February 1, 2012, per my contacts at HAP. In fact, my latest HAP closing on January 31, was a GAPS, and we were told any extensions to the closing date would remove the seller from the program.
So, what does this mean to you, the military personnel? You still have two HAP options available, Government Acquisition or Private Sale. In any event, the good news is that if you need to sell your home, and qualify for HAP, you can avoid foreclosure, short sale or VA Compromise Sale, and keep your credit score intact.
Do you have questions? Email me at tom@teamolsewski.com
HAP- WHY YOU MAY NEED CASH AT CLOSING
One of the biggest sources of confusion I find with Eglin Air Force Base HAP sales from the seller comes at closing. First, if you don’t know what HAP is – it’s the Homeowner Assistance Program from the Department of Defense. It’s designed to help military members who have permanent change of station orders (PCS), and are “upside down” in their home values, i.e. owe more on their mortgages than their property’s market value. HAP will pay the mortgage deficit under certain circumstances, which helps the service member avoid the credit impact of short sale or foreclosure due to their mandatory relocation.
One of the stipulations of HAP is that the Service member is current on his mortgage payments, taxes and association dues, or that is the extent to which the benefits apply. For example, if you were six months behind in your mortgage, HAP would not pay the amounts in arrears to satisfy your bank. You must. So what’s the issue? Even service members who are “current” on their mortgage payments will normally owe a pro-rated amount of mortgage interest, taxes and maybe association dues at closing. Remember, mortgage interest is paid in arrears. If you have a payment due on March 1, that would cover the interest for the month of February, not March.
My last HAP seller asked me why he had a bill for almost $1500 at time of closing from the U.S. Government title agent. I told him it was probably his mortgage proration. He said, “But I made my mortgage payment!” I said, “Yes, but that covered the previous month.” If your closing is mid-month, you would owe about two weeks worth of interest to your mortgage company, which will be collected by the title agent to pay your lender at closing. That goes for taxes and association fees, too.
But for the HAP closing, you will owe the year-to-date taxes that are due. The same applies to homeowners association dues. The government won’t pay those on your behalf.
So what is a reasonable expectation for funds the service member might need for closing? Set aside enough to cover one mortgage payment, and potentially, almost a year tax obligation. You probably will not need all of it, but be prepared “just in case”.
