Bank of America Approval Letter- Version 2 - What "Deficiency"?

Wendy, in California the 2nd lienholder has the right to collect the deficiency by law unless it was the purchase money second and it goes to foreclosure, in which case it is non-recourse.  We have to carefully watch the approval letters to ensure that they waive the right to collect the deficiency or they retain it.

Hi Wendy - My sellers are afraid of the deficiency language in their approval letters, but the folks I know at B of A all say they have never heard of it happening.  The thing I wonder about is that the letter also warns sellers that they will be issued a 1099 and that the difference may be taxable.  So what if the sellers pay the taxes?  If B of A later decides to collect, would they repay the taxes to the sellers?  None of this makes any sense to me.

WENDY,

I'm going to be doing a series of blog posts on how banks are screwing everyone. One of the blogs will be about how Lenders that are apparently funneling their Deficiencies to subsidiary collection companies in order to bypass the governments strict guidelines in their Foreclosure Prevention Act.

Of course, Bank of America is the number one culprit.

I tend to agree with your assessment. Their right to the Deficiency is there whether they mention it or not. It could be they are trying to ease people's mind by not including that phrase and enhance their chances of the Seller and Agent agreeing to the Approval terms. Hmmm.

In Texas we have a Short Sale Addendum to the sales contract that specifically states the lender will

     "accept the net proceeds in full satisfaction of Seller's liability under the mortgage loan; and provide Seller an executed release of lien against the Property in a recordable format."

Therefore, the lender, by agreeing to the short sale, agrees to the terms within the contract. 

Hi Wendy ~ I've done two with BOA this Summer (I'm in AZ), and what I've been told by LM Analyst (and I have this in writing from one), is, depending on the investor, the seller generally escapes a deficiency judgment/collection ONLY if the net to bank is 80% or more of the debt.

Here is what one of mine from June says: 

Note "Payment In Full" line . . . though seller will get a 1099 for the debt relief.

Hi Wendy,  You are soo very knowledgable on this stuff! love to read your blogs.. I always learn something.

www.charlottelakewyliehomes.com

There are some but few exceptions floating around - I got 2 with specific deficiency waivers last month and another that they inked through and initialed out the deficiency language.  But it is like pulling a whole mouth of teeth.

Wendy,

I think you are right.  They are leaving it out, but not forgetting about it.  You should be pointing this out to your sellers.  Right now B of A is about the worst bank to work with.

Two  questions gang:

1. If the lender is not willing to waive the right to collect the deficiency is it in the client's best interest to just let the home go to foreclosure OR complete the short sale and then wipe out the possible deficiency by filing bankuptcy?  I ask the question from a financial standpoint regardless of impacts to credit history.
2. Is there an average time frame for BofA to process these short sales?  We have a client going on 4 months and the buyer's agent is saying they've seen BofA completes them much faster "if you know what you doing."

Any comments appreciated.

Jack, OK then....let's see that stand up in a court of law. The lender is not a party to the contrcat and is not bound by the board generated short sale addendum. I hope you are not advising your sellers that this will protect them in any way at all because it won't. Of course I am not an attorney and this is just my opinion. Please seek legal advice on this.

Michael, I just had a short sale approved with BofA in 59 days. Normal time is probably 4-5 months. A short sale is far better than a foreclosure.

Wendy, Are these letters replacing the old letters or are they using more than one?

I'm right here Wendy :)

Wendy, a very interesting post. 

I have heard all around that BOA, as countrywide is attorcious at oking loans. 

I have a buyer hung up on closing.  We wrote in April. 

And a seller, we have been waiting since October last year.   We were just aboiut approved in January and the buyer walked.  Then with a new buyer and 2 backups we applied again in Feb.  only to have the file deleted in March, then seemingly put on hold, employee left and back to square one.  Now finally we have the file with the investor. 

I am sure we have all the papers required and are calling regularly. Not sure i want to deal with any other BofA shorts.  (funny everyone i speak to is a double loan with BofA.)  

Wendy I hope this is the new letter. I just got one from BofA 2nd two weeks ago with the "charge off" language and right to collect language. When I called into BofA and spoke with a couple of different negotiators about this subject, they both informed me that they only issue two letters, one being the letter I have to release the lien and the second to settle the debt and release the lien. Neither stated that they were able to work around it. Are they asking for 5% of the purchase price on your short sales as well?

Susan Neal - You were given wrong info. I am in California and I have first hand knowledge in 2 cases where BofA was a stand alone 2nd HELOC and they went after the homeowner in both cases. One case was a foreclosure where the 2nd got wiped out and the other was a short sale. My experience and understanding is if you ignore them or tell them you have no money, they will end up 1099 you.

According to the letter their name has changed to "Bank or America."

I don't know that I would trust this letter; I would want it expressly stated in the letter as to whether or not they are able to pursue the deficiency.

Thanks for sharing.  A great resource for all.

Goes to show you how everyone has received different 'form' letters.  Personally I like Candice's best.  You received one that was a little too open ended for my taste - makes your sellers minds go all 'awander' about what could happen.