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!