In a recent short sale, we had Bank of America correct their short sale approval letter. As you should most certainly know by now, Arizona is an anti-deficiency state. That means if the property should go into foreclosure when the mortgage is from original purchase money and is conventional financing, then the lender should have no way of coming after you. So BAC got tricky and tried to sneak in deficiency language in their approval letter. Of course, this was unacceptable. We demanded that they reissue the short sale approval letter. With the look of a kid with their hand in the cookie jar, they apologized and obliged. Here’s the difference between the two letters:

BAC Deficiency Language

BAC Home Loans Servicing, LP and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above. In addition, if this loan is covered by mortgage insurance, the mortgage insurance company may reserve the right to pursue the seller for the deficiency based on the terms of the mortgage insurance policy. Furthermore, there may be tax consequences associated with entering into a short sale. The seller is encouraged to seek guidance from an independent tax advisor, and/or an attorney, before proceeding with the short sale.

BAC Waives Deficiency Language

Upon receipt of the agreed amount, BAC Home Loans Servicing, LP, and/or its investors will waive the remaining balance due on the above referenced loan and release the borrower from further obligation therein, and waive all rights to pursue further judgment or deficiency. BAC Home Loans Servicing, LP will report the debt as “settled for less than the amount owed” and issue a 1099 for the remaining balance. The seller is encouraged to seek guidance from an independent tax advisor, and/or an attorney, before proceeding with the short sale.

If it is subsequently determined that the approval of the short sale was based, in part, on information which BAC Home Loans Servicing, LP later determined to be false or misrepresented or fraudulent, BAC Home Loans Servicing, LP reserves the right to pursue the remaining balance of the note.

Isn’t it amazing that they would even try to sneak this by my client? Be careful with your short sales! If you decide not to use my services, please make sure your short sale approval letter follows this verbiage.

Disclaimer: This is for informational purposes. I am not an attorney, and this is not legal advice.

Chase has made a big splash in the short sale world in the past few weeks. Starting in the end of last December, they have been sending letters to specific homeowners offering up to $20,000 to short sale their home. I know, it sounds way too good to be true. After learning who these are targeted for, these programs make a little more sense. In addition, it should be clear that the $20,000 is the maximum figure, and what each individual homeowner will receive may vary.  Before we start, let’s review the letter:

You could sell your home, owe nothing more on your mortgage and get $20,000!

Dear <homeowner’s name>:

We’re contacting you because we have a new program that could be right for you. Don’t lose hope – you have options that may help you avoid foreclosure and make a fresh start.

You may be able to owe nothing more on your mortgage and get $20,000 after you sell your home!

We would like to talk with you about the possibility of selling your home for less than the amount you owe. If we agree on a lower sale price and a few other terms and you sell your house for that amount before foreclosure, you will get $20,000.

After your home is sold through this program you will not owe any future payments for this mortgage. This program also may allow you to stay in your home while it is for sale. Plus, after you sell your house, you can use the $20,000 to pay expenses, including moving to a new home.

Avoiding foreclosure is possible.
Call us today at 1-877-496-3820

Sounds great, right! For sure, if I was offered $20,000 to short sale, I would in a heart beat! So who qualifies? The target homeowner is a person whose loan has the following qualities:

• Loan was originated through Washington Mutual and was acquired by Chase through the merger
• Loan is a pay-option arm, also known as negative amortization loan, also known as pick-a-pay

There may have been no crazier idea during the boom than the negative amortization loan.  Sure, the NINJA (No income, no job or assets) loans are great to laugh about even though they were a large contributor to where we are today.  However, allowing a homeowner to decide how much of a payment they want to make toward their mortgage is definitely financial suicide for the banks.  Effectively, if you had what would normally be a mortgage payment of $1000 per month, the bank would accept between $300 and $1000 every month.  Anything short of $1000 would be added to your principal.  You think you’re underwater today? Wait until next month when you’re guaranteed to be more upside down!

OK, time to get off the soapbox.  Now that these banks are starting to regain their sanity, they know that these pick-a-pay loans are ticking time bombs.  They want to approach the homeowner before they walk away, and they ask that the homeowner keep the property in good condition so that it is marketable.  To motivate the homeowner, Chase is waiving all deficiency and offering up to $20,000. Best of all, the seller does NOT need to be behind on payments to participate, and they are not required to provide hardship or financials.  This is a great program, and from what I hear, Wells Fargo isn’t that far behind.