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Chapter 9 – Understanding How Banks Deal with Short Sales (full)

Both sellers and buyers should spend time understanding how banks currently deal with short sales. For some time, banks were less than happy to allow borrowers to go the short sale route. However, that has changed in the past 12-24 months as it becomes clear that the foreclosure crisis is far from over and lenders work to limit their losses. Of course, while there are general procedures that are followed for these transactions, each bank has its own specific procedures and policies that consumers must contend with when pursuing a shortsale. The following is a look at three of the largest banks and information on how they are dealing with short sales today.

Bank of America Short Sales

Bank of America has become well known for offering some of the sweetest deals to homeowners going the short sale route. They have also been named the lender allowing the most short sales to occur. Bloomberg.com noted back in 2012 that the Bank of America Corp. topped both JPMorgan Chase & Co. and Wells Fargo & Co. when it came approving short sale transactions.

Instead of focusing on foreclosures, Bank of America has been emphasizing alternative options, including deeds-in-lieu of foreclosure and short sales. This bank also began to test their own incentive program for borrowers to go through with a shortsale. This test began in Florida. However, in May of 2012, Bank of America announced that they would be launching incentive programs nationwide, providing borrowers with more relocation assistance when a qualifying short sale transaction is completed.

Borrowers that qualify for the program may be eligible to receive between $2500 and $30,000 in cash when the short sale closes. The assistance offered by Bank of America is decided on each individual case. However, the determination process takes into account the amount owed, the home’s value and various other factors. According to Bob Hora, a BOA home transition services executive, “Bank of America is committed to providing alternatives to foreclosure whenever possible. This program can help customers make a planned transition from ownership when home retention options have been exhausted or they have made a decision not to keep the home.”

In order to qualify for the assistance payments, sellers may have a pre-approved sale price from the bank before a purchase offer is submitted. Some of the states that have seen the greatest response from homeowners include Nevada, Florida, California and Arizona. The incentives offered and the banks willingness to go through with short sale transactions has helped many homeowners in distress and made Bank of America short sales very popular and well known among buyers as well. Buyers and lenders are both motivated to complete these sales, which makes it easier for buyers that want to complete the process and purchase a home as quickly as possible.

Bank of America also provides plenty of helpful information to borrowers that are trying to avoid foreclosure. Several different programs are available through BOA, depending on the type of loan the borrower has. Homeowners are encouraged to learn more at the bank’s website or by giving their bank a call to learn more about qualifying for a short sale.

Documents Required from Sellers for a Bank of America Short Sale

Short sales are fairly simple with BOA if the existing loan is not a VA loan, an FHA loan or a loan that qualifies for the HAFA short sale program. The documents that the bank usually requires from sellers include the following:

    • Bank statements
    • W2s
    • Hardship letter
    • BOA short sale package
    • Payroll stubs
    • Tax returns
    • Third party authorization

Seller Duties When Going Through a Bank of America Short Sale

The seller has certain duties when applying for a short sale through Bank of America. All these duties can be carried out at the bank’s “Homeowner Portal.”

    • Create a seller account
    • Supply reasons for hardship
    • Upload any needed documents
    • Provide financial information

The Bank of America Short Sale Process

The information needed by the bank is collected from the seller and the listing agent. A negotiator is then assigned to the transaction and the process is completed as follows:

    • Agent is contacted for a Broker’s Price Opinion
    • Documentation is reviewed and any missing information requested
    • Internal payoff numbers are ordered
    • Counter offer is issued
    • File is sent to the investor or MI
    • Short sale is accepted, rejected or countered
    • Agent is notified of the outcome

Wells Fargo Short Sales

Wells Fargo is viewed as one of the more efficient major banks when it comes to short sales. In fact, it’s one of the only banks that will provide a written short sale time line for buyers and sellers. On average, short sales are approved by Wells Fargo within 25-45 days, which is reasonable when compared to other banks. Although Bank of America still approves more short sales than Wells Fargo, they still are in the top three banks when it comes to approving short sale transactions within the United States. According to one Wells Fargo Spokesman, Tom Goyda, “Our short sale activity is consistent with our delinquency and foreclosure rates, which have been below industry averages.”

Who is Eligible for Wells Fargo Short Sales

In order to qualify for a shortsale with Wells Fargo, sellers have to clearly demonstrate their financial hardship. Some of the financial hardships accepted by the bank include the following:

    • Job loss
    • Mortgage adjustment
    • Too much debt
    • Business failure
    • Relocation
    • Death or illness
    • Property damage
    • Incarceration
    • Reduced income
    • Payment increase

In these cases, Wells Fargo usually will agree to the shortsale transaction and often accepts the short sale as payment in full on the mortgage loan.

Basic Paperwork Required for Wells Fargo Short Sales

The basic paperwork that is required from the seller includes, but is not limited to, the following:

    • Hardship letter
    • W2s
    • Bank statements (two month’s worth)
    • 1099s
    • Listing agreements
    • Tax returns (previous two years)
    • Pay stubs
    • Borrower financial form
    • Third party authorization

Wells Fargo Short Sales and the Use of Equator

Wells Fargo is one of the banks that uses the Equator system, which is used to help make it easier to deal with the paperwork that goes along with a short sale. Equator also works to streamline the short sale process, making it faster for all parties involved. When filing a shortsale transaction through Equator, the following is the normal process:

    • A short sale file is initiated in the Equator system by an agent or lawyer
    • Tasks are assigned to be completed by the agent, beginning with the third party authorization
    • HUD information is uploaded by the agent
    • The file is reviewed by a processor and then assigned to a negotiator
    • Disclosures, including the Arm’s Length Affidavit, need to be signed by all parties involved
    • Other documents may be requested to supplement the file
    • The file will be denied or approved if the bank has delegated authority, or the file will go on to the investor to get the final approval

Although JPMorgan Chase & Co has not approved as many short sales as Bank of America, they have been ranked second in bank approved short sales. In 2001 alone, the bank went through with shortsale transactions on approximately 61% of their delinquent mortgage liquidations. This was a huge change from 2008, when short sale short sales only made up about 25% of all their delinquent mortgage liquidations. According to analysts from Chase, they take a 56% average loss on each loan that results in a short sale. 

In the past, JPMorgan Chase has been known for taking a hard line with borrowers pursuing a short sale. In 2010, the bank started sending preapproval letters for short sales that notified borrowers that they could still be on the hook for any debt that was not covered by the sale’s proceeds. The mortgage servicer was working hard to recoup as much money as possible. However, since then, Chase has changed their tactics and become much easier for homeowners to work with when pursuing the short sale option. Now, the bank often offers cash incentives to homeowners who are willing to go through with a shortsale transaction. 

Starting the Shortsale Process with JPMorgan Chase & Co

According to the Chase Homeownership Center, homeowners can begin starting this process by submitting a formal request to find out if they are eligible for a short sale with the bank. After submitting the request, the bank suggests that homeowners look for a real estate agent who is experienced in dealing with short sale transactions. The bank will offer assistance to homeowners having a difficult time finding a good agent. Once an agent has been found, the listing agreement can be sent to the bank and Chase will then help homeowners list their home at a price that is comparable to other properties in the area. 

Chase’s Short Sale Information Packet

The formal request homeowners must submit to find out if they are eligible for a shortsale is included in the Short Sale Information Packet from Chase. This packet must be completed in its entirety, including signatures in all required areas, then mailed or faxed to the bank with all documentation required. Homeowners are urged to keep a copy of all documentation. Included in this packed, homebuyers will find a requirement documentation checklist that lists all documents that must be sent in along with the packet. Documentation required from homeowners include the following:

  • 2 recent paystubs (for wage earners)
  • P&L statement (for self employed)
  • Bank statements
  • Most recent tax return
  • Proof of occupancy
  • Authorization to Furnish and Release Information
  • Request for Mortgage Assistance Form

Authorization to provide information to third parties, a request for mortgage assistance and a request that allows Chase to receive tax return transcripts from the IRS are also included in the packet. Chase offers a special telephone number to homeowners that need help completing the packet as well. 

According to JPMorgan Chase & Co, they are willing to work with homeowners that are already in foreclosure, as well as homeowners that are still current on their loans. Even property owners that are renting out a piece of property may be eligible for a short sale with Chase. Their website also states that the short sale process can be completed in less than 30 days after the appropriate documentation is completed and sent in to the bank.

Next: Chapter 10: Tips for a smooth short sale process

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