UPDATE! Bank of America’s Short Sale Guidelines Have Changed

For those of you that have been doing lots of short sales lately, you’re likely aware that many second mortgages are requesting a minimum of 10% in order to agree to a short sale.  Bank of America is no exception to this.  They are now one of the lenders that request a minimum of 10%, or else they will not cooperate.  Don’t get let down by this recent change because there is something positive in this scenario: it makes it much easier to get these transactions closed due to the fact that you know these guidelines before you even start the short sale process. Knowing this information will allow you to set proper expectations with all parties involved in this short sale transaction, especially the buyer, since in most cases they will be the candidate to cover the difference between what Bank of America requests and what the 1st mortgage is willing to pay (visit www.RealEstateBusinessMentors.com for our blog on Willingness of 1st Mortgages to pay 10%).

You can expect this scenario as long as the loan is with the Short Sale/Loss Mitigation Department, but once the loan goes to the Recovery Department, a different set of rules apply.  In this case you’ll encounter a negotiator asking for a minimum of $5000 AND 10% of the principal.  Now obviously, this is pretty ridiculous, because all of us know that in a situation when a first is allowing $3000 to the 2nd lien holder…then that amount won’t even cover the first $5000 requested by the 2nd lien holder!  For example: if the loan balance is $60,000, then that means that the 2nd lien holder will request $12000 ($5000 + an additional $7000). That can be challenging….but not impossible.

How do you get this transaction closed?

First of all you will need to go to your seller(s) and let them know what Bank of America’s “typical” guidelines are and see if they would be able to come up with the extra funds required to get the transaction closed. If the seller(s) do not have the extra money to bring to the closing table then the buyer will need to come up with those extra funds. You may be saying: The Buyer would never do that! Well, you would be very surprised! Here is how you do it: the key is to set expectations up front with everyone involved, and let the buyer and both agents know that when they submit their offer make sure that the extra money that needs to go to Bank of America will be inclusive of their offer. For example: if they want to purchase the subject property for $250,000 and the 2nd lien holder (Bank of America) requests $6000 while the 1st lien holder only allows $3000, then the buyer’s offer should be for $247,000. As you explain how the deal is to be structured, you’ll need to make sure that the buyer has the funds available to pay that extra amount. When dealing with a situation like this, one of the most important parts of getting these deals done is making sure that either the seller or the qualified buyer has the extra funds to make this transaction work.
One great tip: If you are buying, selling or listing short sale properties keep a running log of different lender profiles and processes that occur. This will allow you to set proper expectations (upfront) so you can ensure that you get your properties closed!

Visit www.RealEstateBusinessMentors.com to get the latest pre-foreclosure and short sale changes and updates and you can visit www.AskBobLachance.com to ask me any real estate questions.

About Bob Lachance

Before joining North Shore Enterprises (NSE) in 2004, Bob Lachance was a 4-year-collegiate-scholarship athlete in ice hockey at Boston University where he won a National Championship in 1995. After leaving BU he enjoyed a successful 8 year career as a professional hockey player. Upon retirement from hockey, Bob completed several profitable real estate rehab projects for his own benefit. He then joined NSE as an associate responsible for property acquisitions and loss mitigation/lender negotiations. Bob brought the same determination and work ethic that lead to great success in his professional sports career and thus generated more acquisitions and short sale acceptance letters in a shorter time frame than any associate before or since.

13 Responses to “UPDATE! Bank of America’s Short Sale Guidelines Have Changed”

  1. 5/04/09 I just spent 90 days attempting to purchase a BoA short sale in IL/one mortgage. I wrote an offer of 112000.00 on a property that was built and sold for 184000.00 in 2007. There are at least 4 other similar properties on the same two blocks listed in the same price range, either short sales or bank-owned. I was through underwriting and approved by my lender before I bid. I increased my offer to 113000.00 on BoAs request and offered to pay 3000.00+ in back association fees in cash. All was good, all approved verbally and one written approval came in. PMI requested the seller sign an unsecured note for an amount of the shortfall. Seller agreed verbally to the note. Note papers came in to be signed, PMI increased the amount of their portion of the note on the paperwork without notice and BoA added in their request for shortfall payback also. Negotiations were difficult with a language barrier, from what I was told. Negotiations broke down, as of course this seller would be up to date with mortgage payments if there was any money to do that. The seller has nothing, or this property would not be in pre-foreclosure. I gave BoA 24 hours to accept my offer and figure out what they needed to do after one last 2 week extension on the contract expired. Needless to say, the seller also canceled the contract on the same day, property is off the market. Now BoA will have to wait until a future foreclosure date, as of today the property is not listed on the auction list through July 09. Nice.

    I did not submit an unreasonable bid with what is selling in the neighborhood. BoA is asking bankrupt people for funds they don’t have. BoA disrespects our tax funding. BoA disrespects my solid offer, I am the one with the money, I am the one with the approved loan and I am the one that was willing to buy a property that could very easily continue to fall in price.

    BoA will get much less at auction. The seller will continue to live in the property as long as possible without making payments. Late association fees will continue to increase. BoA will have to cover those association fees at foreclosure, I would have paid them. BoA disrespects my offer and my ability to buy a property at this time. BoA expects notes to be signed by sellers for shortfalls that are covered by PMI, and by sellers that don’t have the ability to pay back a note such as this at this time.

    Why would the seller sign? Obviously their credit rating is already ruined.

    Nice, BoA, nice.

    I have bid on another property, there are non BoA properties selling in the area, many, many short sales on the books. I bid on a bank-owned property, as I should have the first time.

    • Im going thru the same thing with BOA…
      The seller’s have’nt paid the mortgate in 8 months.

      I’m sitting here ready to sign but they are taking months for something that is obviously in there favor…

      Nice BoA Nice

      I’m now also looking at a for sale by owner…
      Less Hasell, A hand shake, Simple contract and I have a new home.
      Done…!

      Nice BoA Nice

      • Unbelievable! We have been going through this with BOA since 8/09. We were under the impression, BOA accepted our offer of $240,000 in 11/09. They have been taking forever with any responses. The seller’s have agreed to the shortfall and have provided all required documentation to support the short sale. We were advised to move forward with our financing to close in 2/10. Our credit union sent out an appraisor for the lender (we later found out the loan was to be sold to BOA upon closing and it was their underwriters and appraisor). The appraisal came back at $238,000 and BOA refused to underwright the loan on the home. We offered to set up an escrow account for repairs, but they refused. They would only underwright the mortgage, if repairs were made prior to closing. Naturally, we declined and obtained funding outside of BOA. That appraisal is pending. Now, BOA has refused to accept anything less than $266,000? They do not care about their own appraisal, or that they are not receiving any payments on the home and the home is in worsening disrepair, as the months progress. We are heartbroken, as well as the sellers. Good work Bank of America

  2. I am a real estate agent.

    After attempting to sell and list short sales I am realizing it is some kind of game – that the banks make more money by letting the houses go into foreclosure….especially the loans that had PMI (private mortgage insurance) which is foreclosure insurance (money) for the banks. I can’t prove it right now but I believe time will tell that short sales are just good public relations stunts for B of A (and now defunt Country Wide Home Loans) ;making it seem like they are willing to help struggling sellers.

    With my current listing, we have had a pre-qualified buyer who has hung in there for 4 1/2 months. He offered fair market value! And still no answer. R E A L L Y B of A.

    Many agents will not deal with short sales anymore. Who wants to work really hard with no compensation and see sellers’ and buyers’ hopes dashed? Not me.

    JJ

  3. I’m a short sale buyer, or should I say attempted buyer. My first offer went in in January 09, my third offer, which is above what the house appraised for LAST fall, has been “in” for 14 weeks now. BofA recently had the house appraised, changed the locks and took pictures as the owner has to all intents and purposes abandoned the place to its fate. The Phase One Negotiator has yet to declare and I’m under no illusions that there aren’t yet weeks to go… As a SERIOUS question, are Banks procrastinating because they’re in receipt of Public money, and hope the market trends up before they let short-sale deals close? Does anyone have any suggestion, tip, or ploy (ethical or otherwise) to speed the process?…. Am I flogging a dead horse?

  4. It certainly is interesting how Bank of America is handling their short sales… even when the proposed sales price is higher then all of the most recent surrounding sales.

    It is as if they want to lose money.

  5. If this is the case, than why not structure the offers to address the bank with the buyer offering to pay the primary lender an amount and the secondary lender an amount within the purchase agreement. Then total the amount being offered. Then the amount would be able to be financed and prevent the buyer from having to come up with more cash out of pocket.

    The second idea is to approach the second with the offer first. Offer them the opportunity to buy out the first in a separate, yet assignable contract which would allow the buyers funds to cover the transaction. In this case, the first never sees the buyers offer?

    These are just a few questions I am trying to get answered through our boards legal team. If you have any opinions or contact information for someone to deal with at BofA I would appreciate it if you can forward it to me. I have been on hold trying to reach them for half an hour so far today, and yesterday an hour before they all went home and didn’t answer the call at all.

  6. I am a Broker working with a purchaser on a short sale being serviced by Bank of America. We were under contract with seller signature right away but we have been waiting over a month for the bank to provide an answer. Two other offers have fallen by wayside and we were assured there would be a quick answer since ours is within the required net for the bank and approved through FHA.

    I have written the Whitehouse site in hopes to make our government aware of the costs to the taxpayer who are also the ones who are attempting to buy these homes. Plus the neglect of the banks to be expedient in their position to make decisions due to the fact they make more and have job security while holding the assets. No one is reviewing the companies/banks who are part of the demise of our Real Estate market. I have had no response from the Whitehouse representatives.

    Good people have lost their homes due to the flagrant, unprofessional attitude of the employees and hierachy of the banks. We should be all working in a manner to resolve these issues quickly to bring us out of the position we are as a country.

  7. How are you going to increase the payoff for the 2nd lien holder if the 1st lien holder doesnt approve it and it will not be showed nor disclosed on the approved HUD1? nothing can be done under the table, buyer can come up with extra funds but everything has to be included on the HUD 1. The only posibility in this case is if the house is a bone doesnt sell, 1st lien holder will probably accept to pay more than 3k to second if propertty already went to public sale and nobody bought it, but if the house is a hot potato, bank will never accept to pay more than 3 k to 2nd lien

  8. PMI will pay anyway if house goes to foreclosure or if will be short sold it….

  9. What portion or percentage of the deficiency left after a short sale is covered by PMI?

    If it is 100% then why do Short Sale Lenders take so long for approval?

  10. Lenders should suffer financially as much if not more than the Borrower as they took a risk as well.

    Borrowers were the ones who lost their initial deposit which in most cases were their life savings and now find themselves filing for Bankrupty.

  11. Bank of America and the Equator system is a joke. I just went through a 9 month short sale ordeal from H. E. Double tooth pick. After up loading 9 months of bank statements, pay stubs, plus 2yrs of taxes. Bank of America denied the short sale. The reason we were told, I was current on my payments and could currently afford my mortgage. I was told by a BOA customer service representative that I would simply will have to reapply after I retired(military)and get behind on my payments. The fact that I was due to retire and relocate to another state was not reason enough to short sale. It’s also worth mentioning that house only appraised at $229K and was originally purchased for 300K in 2007. Bottom line is if you are not behind on payments or looking at foreclosure, BOA will not work with you and will blame Equator for why they are stuck in the review stage for so long. Beware..If you are Military or need to relocate don’t ever get a mortgage through Bank Of America. If you already have one, I am sorry all you can do is walk away or get behind on your mortgage. Either was way is painful, wrong, and hurts your credit, but apparently BOA doesn’t care.