Bank of America Short Sale Deficiency Policy Change?
Has mortgage servicing behemoth Bank of America clearly defined their policy on how they handle the short sale deficiency? When a short sale is complete, the loss the bank experiences, also known as the short sale deficiency, has always been a very dicey subject. “What happens to the difference?” is the most common question a borrower asks prior to attempting a short sale. And for good reason, because it can mean the difference between owing tens of thousands of dollars and owing zero. Big difference. For a more detailed understanding of this concept, review the following article on the subject, “Is a Short Sale Better Than a Foreclosures?”
Jack Schakett, Bank of America senior vice president for credit loss and mitigation strategies, said this week that if a borrower proves he can no longer pay the mortgage and has few or no assets, the bank will waive its right to a deficiency judgment during the closing of a short sale. However, if someone can afford to pay or has assets, the bank will try to negotiate a set fee for the borrower to pay at closing or ask the borrower to sign a partial or full note. And in the event the borrower refuses to turn over financial information, Bank of America will retain its right to go after the money.
“We want to help customers who legitimately can’t afford to make payments, but we don’t want the ones who have a bunch of money to just be able to walk away,” Schakett said. “They have to share some of our pain.”
Schakett, who spoke Thursday at a National Association of Real Estate Editors conference, said the change is part of a new approach to short sales. “Customers would like to know if they do a short sale deal, are they done or not,” he said. “It’s best for both of us.”
Is this really a policy change?
Let’s look at Jack’s comments a bit closer. First of all, how is “few or no assets” defined? Bank of America hasn’t released that ultra-important definition. Secondly, what does “has assets” look like? The lack of detail plays into Bank of America’s favor because it gives BoA the ability to enforce a deficiency requirement on basically any short sale request they want. Third, Bank of America has historically not even accepted a short sale offer unless the borrower’s financial information was also submitted. Therefore, this so called “policy change” sounds like the same ol’, same ol’.
What are the best practices for avoiding being held responsible for the difference created from a short sale? If you are a borrower considering or currently in the short sale process, listen up! First, being stuck with a deficiency is NOT automatic, it can be negotiated. The key is to work with a highly trained, expert short sale specialist. This person needs to be an investor, someone who is going to buy the property directly from you. If you work with a real estate agent who is listing the property, their hands will be tied and they are more unlikely to have the negotiating flexibility necessary to fight the deficiency.
As a licensed real estate, by recommending you work with an investor, I am NOT dogging agents in the short sale process. It’s not their fault. Their hands are tied in the process. You need to work with a person who is the buyer so that they can negotiate directly with the lender’s short sale department to find a middle ground. Experienced investors have numerous tools and strategies that very few people know about that can all play a role in getting the bank to not hold the borrower responsible for the difference. Where do you find these people? Our organization has the largest and the most experienced network of highly trained, expert short sale specialists in America. Leave a comment below and we’ll get you in contact with one of our people closest to you.
I’m also interested to hear your comments on my position that Bank of America hasn’t really changed anything with this latest announcement. Your thoughts?
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appreicaite the heads up and we will now send this article with our packages to B of A
Good article. So true about BOA. We currently have a contrat on our home and are doing a short sale with BOA. We are not in default and have been making payments. It has been a tight struggle lving pay to pay check. We retained a lawyer for the sole purpose of having the deficiency written off. Big mistake!!! Since the approval letter we have been told that the letter was approved and that it was being worked. We do not have monies or assets what so ever. Need help.
I guess that may work in some instances, however, if the investors plan to make money on the property by purchasing the home, it tells me that the lender is not receiving all they would if the property were offered to the masses through a Realtor. I do not feel my hands are tied at all when negotiating a short sale, as a Realtor. Banks are really scrutinizing the investor purchases and my company policy states that the lender has to be advised (in writing) that the investor plans to resell, thus full disclosure. This is not a business for the weak at heart! Good luck with your business plan, but please don’t disqualify the ability of a Realtor to get the job done.
I have been a licensed agent for many, many years. I’m not disqualifying based on opinion, but on what is happening in the marketplace. It isn’t a licensed agent’s fault that their hands are tied. The banks created this issue.
What happens when the lender comes back and says that they need the seller to bring $9800 to the closing table or the short sale won’t be approved and they will close the file? What can an agent do? Nothing. Their hands are tied. Not their fault. What can an investor do? Raise the price by $9800 to pay for this.
What happens when the 2nd mortgage wants $20,000 instead of $3,000 in order to release? What can an agent do? Nothing. Their hands are tied. Not their fault. What can an investor do. Move $17,000 as a closing cost on the Buyer’s side of the HUD, and get the deal closed.
I could on like this for hours.
Again, nothing against agents. It isn’t their fault. It’s the banks that have made this process so incredibly challenging.
I’ve never had a problem with Bank of America waiving the deficiency, right out of the gate. Perhaps that is because I only work with sellers who have a true, documentable hardship and I sell the properties as close to market value as possible as opposed to trying to firesale the property so an investor can make money.
By saying this, I am not dogging investors. I believe they provide an important service in the situations where a property is in such a state of disrepair that it can’t be financed. In those instances, an investor/contractor who purchases a short sale, fixes it up and then resells it as a much improved and financable property deserves to make as much profit as possible. However, if the property is in decent shape, there is absolutely no reason why I should collude with an investor to buy it for a lower price as a short sale just so they can turn right around and resell it (without improving it) at a profit. If the property can be sold for more money to an end buyer, that money should go to the bank taking the hit.
Good grief Phil, either you’ve encountered too many agents not truly famaliar with the short sale process & negotiating or investors in your area are magical…or maybe both. Moving closing costs to the buyer side is no big strategic move, it happens all the time. Investors willing to overpay for a property… not so common in this neck of the woods. I haven’t seen a bank yet that didn’t require the seller list the property with a licensed real estate agent. If the agent & seller decide to outsource the ss processing, that’s their business but I wouldn’t turn it over to an investor for processing. BTW, I close nearly all of my short sales & I’ve been doing this since 2004.