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Attn Short Sale Agents: Thinking About Taking on a Bank of America 2nd Mortgage? You May Want To Reconsider...

By Bob Hertzog

Real Estate Broker/Owner with Summit Home Consultants

August 14, 2009 02:17 PM

I hate to be so negative, but the BANK OF AMERICA 2ND MORTGAGE division is making me nuts! I'll explain the scenario...

IndyMac in 1st, $480,000
BofA 2nd, $40,000

After two months, we get an offer (on 6/25/09) for $275,000 (the comps support this value, and I send them in with my package).

We send packages to both lenders. BofA takes 30 days to tell me everything needs to be on their forms, HUD-1 at 5% of total purchase price, yada yada yada....

We jump through hoops, change the HUD to reflect this, send the revised HUD to IndyMac, etc. Indymac is ready to approve, and we get a letter yesterday from BofA, saying they will take the $13,000 offered to them (1/3 of total amount owed), but will call it a "charge off" on borrowers credit report, and the Buyer is required to agree to be responsible for the remaining $27,000. A member of BofA will call them after the short sale to set up a payment plan.
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Seller called his attorney, attorney says, "Hand the house back to them. A "charge off" stays on your credit report for 7 years anyway, and now you are still on the hook for the remaining balance". I can't argue with him. He's absolutely right! Why do BofA any favors, when his credit is ruined anyway?

This client has not had a job for over 1 year, and is currently in the middle of a divorce, with 3 kids.

So, now 40-50 hours of work down the drain, BofA gets NOTHING, another home in a great neighborhood goes to REO and brings down the prices, etc.

I know that our ultimate goal is to help homeowners, and we all are really trying to do just that. As long as our government keeps bailing these banks out, what incentive is there for them to work with homeowners to avoid foreclosure?

I can only hope that other lenders don't follow in the same steps as BofA.

Is there anything we can do to alert our lawmakers of the crime that is being committed by the likes of BofA? I sent letters to my senators today, along with the letter that BofA sent my client. I'm sure it will fall on deaf ears, but at least I can say I tried.

So, I hate to say this, but my advice to fellow short sale agents....STEER CLEAR OF ANY DEALS THAT INVOLVE BofA IN 2ND POSITION! THEIR RECENT ACTIONS ARE BORDERING ON CRIMINAL, AND YOU DON'T NEED TO WASTE YOUR PRECIOUS TIME DEALING WITH THEM!!

Sorry for my rant, but something needs to be done about this!

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Eric Reid

Renaissance Realty Group of Keller Williams Atlanta Partners - Lawrenceville, GA

I am starting to think the most help we could offer "barrows" is to stop doing short sales.. maybe then the banks we get it .. we are working for THEM too

Aug 14, 2009 02:21 PM

Jon Zolsky, Daytona Beach, FL

Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL

Buy Daytona condos for heavenly good prices

Bob,

Just do not know what to say. Lately had quite a few listings where BOA in the first, but have one where they are in the second. And my Seller will not come up with anything

Aug 14, 2009 02:27 PM

Wayne Johnson

Coldwell Banker D'Ann Harper REALTORS® - San Antonio, TX

San Antonio REALTOR, San Antonio Homes For Sale

Hell of a deal. Now everybody looses. IndyMac, BofA, and especially the home owner. In your workout, at least everybody got something-diminished value is better than no value. Amazing.

Aug 14, 2009 02:31 PM

Al Dobbs

ADD Real Estate - North Chicago, IL

Sometimes it is not the bank but the clerk at the bank making the bad decisions. Maybe going up the food chain would maybe have gotten a different result. I at least hope that the senior management is capable of rational thought. Who knows it is Bof A.

Aug 14, 2009 02:59 PM

Bob Hertzog

Summit Home Consultants - Phoenix, AZ

Designated Broker

Wayne, you're forgetting that we, the taxpayers are losing as well. Remember, Bank of America recieved $5,200,000,000.00 (5.2 BILLION DOLLARS) from folks like you and me (hopefully, I added enough zeroes) in TARP money.

Jon, I don't know what to say either. Be prepared to deal with this same issue on your deal with the BofA 2nd.

Al, unfortunately I think that the clerk is making the decisions. I've tried going up the food chain, and am always told, "We have XXXX short sale packages we are currently looking at, get in line". As long as they are getting bailed out by the government, what incentive is there for them to work with homeowners?

Aug 14, 2009 03:02 PM

Satar Naghshineh

Satar - Amiri Property and Financial Services Corp. - Irvine, CA

Bob, exact same situation. They offered to release the lien for 5% of the purchase price. At first I thought I heard loan balance, but no, purchase price. So we jump through hurdles, as the 1st was only giving BofA 3k, to come up with the other 12k. Now, like you, we get the same approval letter stating charge off and rights to collect.

I checked into this, the borrowers got a stand alone HELOC a year later after they bought the house. According to BofA and the borrower's attorney (I had them see one before signing), because of the loan and the state of California, they can go after the borrower regardless if they do a short sale or not as it becomes an unsecured debt in a foreclosure. In fact, I've seen this happen to a property (same type of loan with BofA) which went into foreclosure. BofA is now trying to collect on the borrower that the house got foreclosed on.

I tried my best to get the rights of collections off, but I fell on deaf ears. The best I could do is to settle the debt and release the lien for 50% of the loan balance, which in this case, was 50k!

My clients ended up signing the approval letter because having BofA try to collect on 85k is better than trying to collect on 100k in foreclosure. They also wanted to avoid a foreclosure on their record. Our transaction closed today.

Also foreclosure on the record is worse and the debt that will eventually get "charged off". So I think your clients might have gotten bad legal advice in regards to that aspect.

Aug 14, 2009 05:10 PM

Bob Hertzog

Summit Home Consultants - Phoenix, AZ

Designated Broker

Satar,

Thanks for the info. I'm trying to push them towards doing the same thing, using the same argument that "At least they can't come after you for as much as if they foreclosed and got nothing". The 2nd in this case is also a HELOC, and is not afforded any protection under the AZ Anti-Deficiency Statute. Also, I would HOPE that a lender would look at a short sale differently than a foreclosure, as the Borrower is at least TRYING to get more for the property, as opposed to just giving up and forfeiting the home to a foreclosure. Thanks again for your input.

Aug 14, 2009 05:23 PM

Jim McNinch

Trademark Loss Mitigation - Spring, TX

Short Sale Specialist, Texas

This is now standard practice from BofA for their 1st lien position as well. We have done three short sales recently where BofA was in the 1st position and they are applying the same tactic.

The most frustrating thing was we were told three different things from three different loss mitigators! The most common explanation from them was "the seller had a choice." If they didn't agree to some payment plan, then they would get a 1099 (better choice).

A BofA supervisor told us that once the short sale occurred, the homeowners would be contacted by collections for an attempt to collect the difference between the loan payoff and the short sale. If they didn't agree to or were unable to pay what ever payment plan collections came up with, then BofA would issue a 1099.

The approach by BofA seems to be inconsistant at best among their LMs - or worse - the LMs all have a different understanding of BofA's policy.

Jim

Aug 15, 2009 01:49 AM

Sidney Jimenez

Keller Williams - Miramar, FL

CDPE, Short Sale Expert, 954-665-9449,

JIM,

I agree with Satar and your clients should seek another legal opinion. And, no one has mentioned the amount owed to the first that will be added to the amount due BofA on the Junior lien. They must consider that and take the least damaging deal.

The Junior Liens are now getting their due after being stepped on for the last couple of years. It seems they have found a way to make a little more money than was being afforded to them in the past. The First would get a big chunk and the Junior would get almost nothing. Well, it seems they are going to play hardball, approve less sales but net more than in the past. Also, it seems they are starting to sell the debt forward to collection agencies and thereby get a little more...Man! And we thought it couldn't get worse.

Aug 15, 2009 04:12 AM

Bob Hertzog

Summit Home Consultants - Phoenix, AZ

Designated Broker

Hi Sidney, great to hear from you. I am in AZ, and we have an Anti-Deficiency Statute that protects the borrower from being pursued on the 1st mortgage (and the 2nd if it's a purchase-money mortgage). In this case, the 2nd is a HELOC, which leaves them wide open for a deficiency judgement on the 2nd.

Jim, I wish we had that "1099 Option" you are referring to. My client is insolvent, and definitely will not have a tax consequence as a result of the short sale.

Aug 15, 2009 04:45 AM

Satar Naghshineh

Satar - Amiri Property and Financial Services Corp. - Irvine, CA

Bob - Jim is stating that they most likely issue your client a 1099 after the short sale if the borrowers don't agree to a payment plan. I agree with him.

Sidney - I think it has to do with the bail outs. The investors probably got the bail out money and are using the lenders as servicing companies to extract more cash out of the deal.

Aug 15, 2009 06:40 AM

Bob Hertzog

Summit Home Consultants - Phoenix, AZ

Designated Broker

Got It...Thanks for the clarification!

Aug 15, 2009 06:50 AM

Sidney Jimenez

Keller Williams - Miramar, FL

CDPE, Short Sale Expert, 954-665-9449,

The servicing companies are the ones that got the bailout. (BofA, Countrywide, Citi..ect..ect) And the investors pay those same companies for their services, such as processing Short Sales, Loan Mods...

Aug 16, 2009 03:13 AM