What is a Cooperative Short Sale and How Does it Work?

A few months ago I closed my first Bank of America Cooperative Short Sale.  The process was easy, quick and appeared fair to all parties involved in the transaction.

In a nutshell, here's how the Bank of America Cooperative Short Sale Program works: 

1. The Seller, who can be an owner occupant or an investor, decides to Short Sell their home.
    
2. He/She provides Bank of America with typical documentation required in order for the bank to consider a short sale including, but not limited to, 1099s, W-2s, Tax Returns, a Hardship Letter, Bank Statements and a Financial Statement.
    
3. The bank receives the documentation and orders an appraisal or a broker price opinion (BPO).
    
4. The bank sets the list price for the home (as per the appraised/BPO value).
    
5. A Realtor lists the property for sale at Bank of America's list price.
    
6. The home goes under contract and said contract gets submitted to Bank of America.
    
7. Bank of America renders a decision regarding the short sale approval within 10 days from the receipt of the sales contract.
    
8. The transaction closes. 

While the process sounds easy and simple there are a few items (good and bad) you should be made aware of regarding this type of short sale:

1. The Seller MAY qualify for a $2500 "moving/relocation" package at closing.  This is paid by the bank to the Seller at closing out of the proceeds from the sale.
   
   
2. The bank sets the list price.  If the bank uses an unqualified appraiser or rely's on an inaccurate BPO, then the homeowner may suffer the consequences of losing the home (see below).
   
   
3. The Realtor has 120 days to market the property.  If the property does not sell in 120 days, then the Seller may be required to turn the property over to Bank of America via a Deed in Lieu of Foreclosure.  This seems like a good deal for the bank, especially if they are setting the sale price, as they will not have to go through the long/expensive foreclosure process.
   
   
4. As per "7" above, Bank of America can make a decision regarding the short sale in just 10 days.
   
   
5. In contrast to the foregoing, a promisory note or a cash contribution MAY be required by the Seller at closing. 
   
   
6. Bank of America MAY reserve the right to seek a deficiency judgment after the sale.  Accordingly, the Seller may wish to have an attorney review the Short Sale Approval Letter furnished by Bank of America to the Seller prior to agreeing to the terms of the short sale.
   
   
7. Once there is a contract on the home, Bank of America MAY automatically "stay" the foreclosure (if applicable) until a decision is made regarding the short sale approval.
   
   
8. The Bank of America Cooperative Short Sale Program can not usually be used when there is a second lien on the property.

On the surface the Bank of America Cooperative Short Sale Program seems appealing.  However, once you analyze it a little, there seems to be significan risks that the homeowner faces.  If Bank of America rely's on inaccurate valuation data regarding the value of the property, then the homeowner may be required to perfect a Deed In Lieu of Foreclosure.  If that were to occur, it may have been to the Homeowner's advantage to apply for a more "typical" short sale in hopes that an offer at or close to Fair Market Value (FMV) is obtained without the constraints of the bank setting the list price.

Overall my experience with the Bank of America Cooperative Short Sale was good.  I am now processing 2 additional Bank of America Cooperative Short Sales. The bank has priced one property accurately and the other at approximately 25% above FMV.  The properly priced one is under contract while the non-properly priced home has had 2 showings in 3 weeks.  I guess time will tell.