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Short Sale With BOA Is Bad Deal For Borrower
A couple consulted with me concerning a proposed short sale of an "upside down" investment property. They had give a purchase money first mortgage to Bank of America, and subsequently, borrowed additional money under a line of credit second mortgage from the same bank. A buyer had submitted a contract for about 90% of the first mortgage balance. BOA approved the short sale. They gave the borrowers a document to sign which said that BOA would release their two mortgage liens, but it did not state that the debt would be released. The bank told the borrowers that they had to speak with representatives of another department to discuss their personal liability after the short sale. The couple asked if they could speak with someone from the department about liability prior to signing the bank’s documents which would contractually obligate the borrowers to complete the short sale. They were told that they first must agree to the BOA short sale terms before the bank would discuss their personal liability.
The story is another example of why short sales are often not in the borrower’s best interest. The banks refusal to even discuss with the borrowers their personal liability after the short sale should be unacceptable to mortgage borrowers. I have stated before my opinion that short sales benefit banks and real estate agents more than they benefit borrowers. If you sign a short sale document presented by a mortgage lender in which you consent to personal liability after the short sale you have forfeited most of your defenses to a collection suit brought by your lender. I’ve heard from many clients that their real estate salesman and their bank representatives orally assured them that short sale documents with banks are a formality and that the bank will not sue after they get the proceeds of a short sale. These assurances are not legally binding and will not protect you in court. Most people should not agree to short sales unless the lender gives you a full release in exchange for finding a buyer for the distressed property.
June 4, 2009 in Mortgage Foreclosure | Permalink
Comments
Gwen, you should preference your comments about giving advice to REFER to advice outside the REALTOR's licensing guidelines.
I sure as hell hope you are able to give advice about the short sale process. If not, don't take a listing that is or will become a short sale listing.
In fact, I'm tired of realtors desperate for a commission agreeing (with NO knowledge in or experience of) short sales.
Learn about short sales BEFORE you take listings.
Real people are RELYING on YOU for guidance...for help avoiding foreclosure.
None of this is intended to blast Gwen, whose point is to consult with one's CPA and real estate attorney.
CPA about potential tax implications, especially if you're not a "homestead" owner.
Here's where I have difficulty with real estate attorneys. Real estate attorneys with whom I've consulted ONLY know the standard sale & purchase agreement.
They do NOT know anything about OPTION contracts.
If a listing agent does not know about option contracts in today's tumultuous distressed property market, the list agent is jeopardizing a homeowner's selling short.
What do I mean?
How long with buyers stick around waiting for the bank to respond?
30 days? 60 days? 90 or more days?
Rarely, will a normal buyer wait around past 60 days, even a buyer whose buyer's agent clearly has explained the process and insists the buyer wait.
After 45 days, the buyer wants to look at other properties.
The buyer finds one (short sale) and list agent accurately or inaccurately tells buyer's agent he/she either has or is about to have lender approval.
Guess what?
Buyer submits offer w/o canceling the initial offer. Can a buyer submit offers on more than one property?
Not legally, unless buyer wants to purchase more than one property.
However, it happens all the time.
Suddenly, the list agent of the initial property gets approval and excitedly calls the buyer's agent, who regrets to inform the list agent the buyer has purchased a different property WITHOUT CANCELING.
Big lawsuit coming, right?
WRONG!
Seller/Owner MUST have money to pursue buyer for specific performance. No lawyer in Orlando would touch a similar case without $15,000 retainer. Not ONE attorney.
In their minds, the seller is in distress...needs to sell. Obviously, this seller has no money, right?
Now, my broker utilizes the OPTION contract. Unfortunately, most real estate attorneys have no clue what it is or why it BENEFITS sellers needing to short sell.
Simply recommending a seller/homeowner consult his/her attorney and CPA should come with disclaimers.
What happens when a seller needing a short sale has a buyer who cuts out and the property goes in to foreclosure? Did that real estate attorney give the "right" advice by not recommending an OPTION contract with an investor who will stick around?
Simple advice might absolve a real estate licensee from any alleged impropriety. However, simply suggesting a homeowner consult a CPA and real estate attorney might not help a homeowner in distress.
Mike Payne
Saraosta-Orlando Realtor
Posted by: Mike | Dec 17, 2009 12:14:30 PM
Great blog, Jon! It's good to get an attorney's view. Over the months, I've referred 4 different people your way regarding asset protection advice.
In most cases, I agree with you that banks and realtors benenfit from a short sale (and) that borrowers MUST consult with tax and legal professionals.
I too am a realtor. Unfortunately, I work MANY short sales including two personal shorts on investment properties. Yes, I know the pain quite well. I'm not just a realtor pretending I feel your pain while desperate to grab a listing and assign it to a negotiations company.
An attorney advised the borrower of one short sale to insert language on the offer to the effect debt owner agreed to leave borrower alone in exchange for short sale. No deficiency action now or ever...debt satisfied.
Homeowner debt forgiveness Act protects primary residences from tax implications, according to attorneys. For second and investment properties, the "investor" may or may not get hit with a 1099.
Fortunately, I've had good experiences with BofA/Countrywide once I discovered a contact (Stephani) inside the escalations department. Once I get the file escalated (very important), she can take it over. According to Stephani, "negotiators" are assigned 250-350 files at any given time.
Is it any wonder your BofA experiences are horrible?
Thanks again, Jon.
Mike
Posted by: Mike | Oct 29, 2009 6:54:36 PM
The banks are giving absolutely no help with the mortgage situation. My home was destroyed by Hurricane Wilma. Because my spouse passed, I'm not able to make the payments on the rebuilt home. (May I add, the insurance company depreciated the damaged home to 1/4th of what it was insured for.) Because of the insurance problem, there is an SBA second on the home. Now they are deducting payments from my disability check. Plus I'm hearing, after the short sale they take all your savings away from you. How can this happen? There are people worse off then me but I know deep down we're all getting shafted. Everyone could fight this if we all stopped paying our mortgages until someone comes to the rescue.
Posted by: Valerie Handelsman | Sep 21, 2009 6:52:57 PM
I am in the middle of one of these wonderful Short Sales with Bank of America. I called them and told them that we were having trouble making our mortgage and that things were probably going to get worse. They did, My husband got laid off and I am unable to work. They called back after 5 months and said SORRY there is no way you meet the eligibility required for a loan modification. What a bunch of jerks. Why do they think I called. I am absolutely fed up with all of them. Credit Cards and all. I would love to just pick up and go live where no one is waiting around the corner to hit you over the head and grab what you worked all you life to accomplish. I would love to do something to show the government that we are not taking it anymore. I am ready to revolt and I think many others are too, WE JUST DON'T KNOW HOW TO GET IT STARTED. I bet if you advertised a plan of ways to make the government listen and allowed people to show that they were unhappy without the thought that they would get arrested....they would show up! POST A PLAN AND THEY WILL COME!
Posted by: Kim | Sep 5, 2009 12:25:24 PM
Bank of America/ Countrywide are the absolute worst to deal with. They are inflexible and reason they can be that way is because 1) they received billions of your tax dollars in the TARP program started under the BUSH admiistration; 2) the received billions of dollars from insurer AIG who went bust trying to pay off all of their insured loans) Bank of America has billions from Chinese investors who look at those collateralized loans as a positive when the market returns in the next 4-5 years. In the mean time the consumer/borrower gets shafted again by the bank and hirer taxes to fund the bailout of the banks. This entire system needs to be overhauled. If you think Bernie Madoff made away with money think about how much the banks and investment firms made selling these collateralized loans to investors overseas that is what no one talks about we are talking TRILLIONS of dollars ... that is TRILLIONS with a T! Lehman brothers and Bear Stearns are just the tip of the iceberg and why the American people are not revolting I do not understand. I guess most are unaware of how much financial assault our government allows big business to get away with. I don't care where you live from Seattle to Miami its the same ole story... foreclosures up Bank profits Up and the homeowners on the brink of diaster.
Posted by: James Raines | Aug 7, 2009 12:10:08 AM
I am a realtor and I always want any seller to contact their cpa or attorney regarding a short sale. Their are tax liabilities they need to know about before they agree to a short sale. A Realtor can not and SHOULD not give advise on short sales.
Posted by: Gwen | Jul 26, 2009 9:29:14 PM
