BOA Accepts Short Sale but with collectable balances verbiage in the letters

I have a listing that I have an offer for 80k cash.  The BPO came in at 60k.  BOA wants my seller to sign the 1st and 2nd acceptance letters stating that they are writing them off as collectable balances.  My seller has no interest in doing that.  The negotiator wont change his stance or alter the letter at all.  Is BOA doing every short sale this way?  

We have been at a stand still for a few months.  I got a call last week from an agent requesting to do another BPO.  We went down there and now this BPO has a value of 45k.  The agent said it was a REO BPO.  There is still not a sheriff sale date.  And Minnesota has a 6 month redemption period.  Who would have ordered this BPO and what is the purpose?      

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Replies to This Discussion

Permalink Reply by Steele V. Propp on January 25, 2010 at 4:51pm
Short sale department and foreclosure departments are two separate entities and frankly, rarely seem to talk to each other.

I do alot of BPOs for various asset management companies and it is common for them to start this process very early in the default process. Foreclosure department likely ordered this.
Permalink Reply by Kris Lindahl on January 26, 2010 at 3:13am
That is probably the case. They are such a mess. Has anyone else had the collectable balance issue?
Permalink Reply by Ryan Gerding on January 27, 2010 at 10:47am
I just had a short sale approval and the language refers to the right of BofA and its investors to seek a deficiency judgement for the difference between the loan amount and the net proceeds of the short sale. BofA indicates that this is language approved by their investors and cannot be changed.

I'm not sure I understand your question. You say you have an offer at 80k, but the BPO's are coming in at 60k and 45k. What is the loan balance. The difference between the 80k and the loan balance would be the collectable balance.
Permalink Reply by Kris Lindahl on January 27, 2010 at 10:55am
The seller owes 120 on the first and 30 on the second. The collectable balances equal 70k. Why would my seller agree to that acceptance letter when the first gets waived away in foreclosure? Therefore, the sellers would only be on the hook for the 30k second versus the 70k collectable balance. Does that make sense? I have had this happen more than once with BOA.



Ryan Gerding said:
I just had a short sale approval and the language refers to the right of BofA and its investors to seek a deficiency judgement for the difference between the loan amount and the net proceeds of the short sale. BofA indicates that this is language approved by their investors and cannot be changed.

I'm not sure I understand your question. You say you have an offer at 80k, but the BPO's are coming in at 60k and 45k. What is the loan balance. The difference between the 80k and the loan balance would be the collectable balance.
Permalink Reply by Ryan Gerding on January 27, 2010 at 11:00am
Ok. That makes sense. I would't agree to that either, especially since the debt would be wiped in a foreclosure anyways. With the collection, there is a chance that balance gets written off and your clients will be mailed a 1099 (i think that's the form) for the amount of the writeoff which would normally be taxable, but thanks to Obama, should be not taxable.

I'm not sure what state you are in, but would the lender foreclose juducially or through trustee? Makes a difference on how the debt is handled.

Kris Lindahl said:
The seller owes 120 on the first and 30 on the second. The collectable balances equal 70k. Why would my seller agree to that acceptance letter when the first gets waived away in foreclosure? Therefore, the sellers would only be on the hook for the 30k second versus the 70k collectable balance. Does that make sense? I have had this happen more than once with BOA.



Ryan Gerding said:
I just had a short sale approval and the language refers to the right of BofA and its investors to seek a deficiency judgement for the difference between the loan amount and the net proceeds of the short sale. BofA indicates that this is language approved by their investors and cannot be changed.

I'm not sure I understand your question. You say you have an offer at 80k, but the BPO's are coming in at 60k and 45k. What is the loan balance. The difference between the 80k and the loan balance would be the collectable balance.
Permalink Reply by Steele V. Propp on January 27, 2010 at 11:16am
Minnesota is largely a non-deficiency state so correct me if I am reading this wrong but it doesn't matter what the first mortgage approval letter says. If it was a purchase money loan on a primary residence they can't collect. They will just have to write it off and 1099 the seller. And as mentioned, that is no big deal with the Tax Forgiveness Act.

But I am not sure about the secondary lien. Even if they can do a judgement it might not be that bad. Hard to collect from a distressed seller. Maybe offer a small promissary note, no interest for 5 years.

One thing we are seeing is that different investors have different policies. Just because the loan is with BOA doesn't mean the policy will always be the same.
Permalink Reply by Mary Wilcox on January 28, 2010 at 7:53am
would the lender foreclose juducially or through trustee? Makes a difference on how the debt is handled.

Ryan could you tell me the difference in the way it is handled? Judicial vs non? I work in MO & KS and KS is judicial and MO is non-judicial. I'd love to have this understanding if you would elaborate a bit.

Thanks so much!
Mary Wilcox

Ryan Gerding said:
Ok. That makes sense. I would't agree to that either, especially since the debt would be wiped in a foreclosure anyways. With the collection, there is a chance that balance gets written off and your clients will be mailed a 1099 (i think that's the form) for the amount of the writeoff which would normally be taxable, but thanks to Obama, should be not taxable.

I'm not sure what state you are in, but would the lender foreclose juducially or through trustee? Makes a difference on how the debt is handled.

Kris Lindahl said:
The seller owes 120 on the first and 30 on the second. The collectable balances equal 70k. Why would my seller agree to that acceptance letter when the first gets waived away in foreclosure? Therefore, the sellers would only be on the hook for the 30k second versus the 70k collectable balance. Does that make sense? I have had this happen more than once with BOA.



Ryan Gerding said:
I just had a short sale approval and the language refers to the right of BofA and its investors to seek a deficiency judgement for the difference between the loan amount and the net proceeds of the short sale. BofA indicates that this is language approved by their investors and cannot be changed.

I'm not sure I understand your question. You say you have an offer at 80k, but the BPO's are coming in at 60k and 45k. What is the loan balance. The difference between the 80k and the loan balance would be the collectable balance.
Permalink Reply by Kris Lindahl on January 28, 2010 at 8:04am
Foreclosure by advertisement is about 95% of foreclosures in Minnesota. You are correct in that they cannot come after the seller for the deficiency on the first if it is a foreclosure. The reason they cannot is because they are taking the property back. Therefore, they waive their right to come after the seller on the 1st. But that is only in Foreclosure and doesn't apply to a Short Sale. The 2nd is a problem in foreclosure or in a short sale.

They cannot 1099 on your primary residence.

I guess what I have discovered is BOA's acceptance letters don't fit Minnesota law. More often than not foreclosure seems to be a better option. There is not a lot of incentive to do a Short Sale when you are agreeing to collectable balances that are this high.



Steele V. Propp said:
Minnesota is largely a non-deficiency state so correct me if I am reading this wrong but it doesn't matter what the first mortgage approval letter says. If it was a purchase money loan on a primary residence they can't collect. They will just have to write it off and 1099 the seller. And as mentioned, that is no big deal with the Tax Forgiveness Act.

But I am not sure about the secondary lien. Even if they can do a judgement it might not be that bad. Hard to collect from a distressed seller. Maybe offer a small promissary note, no interest for 5 years.

One thing we are seeing is that different investors have different policies. Just because the loan is with BOA doesn't mean the policy will always be the same.
Permalink Reply by Steele V. Propp on January 28, 2010 at 8:29am
I believe that they can 1099 your primary residence. Just that the Tax Forgiveness Act covers this situation and negate the taxes. Do you have somthing from the state statutes that says different?
Permalink Reply by Ryan Gerding on January 28, 2010 at 8:32am
Cancellation of debt is a federal tax issue, so I don't believe it varies from state to state. State taxes, however, is a different story.

Ryan Gerding

Steele V. Propp said:
I believe that they can 1099 your primary residence. Just that the Tax Forgiveness Act covers this situation and negate the taxes. Do you have somthing from the state statutes that says different?
Permalink Reply by Kris Lindahl on January 28, 2010 at 8:54am
They can but most likely when some one is going through a short sale they are insolvent.

Steele V. Propp said:
I believe that they can 1099 your primary residence. Just that the Tax Forgiveness Act covers this situation and negate the taxes. Do you have somthing from the state statutes that says different?
Permalink Reply by Kris Lindahl on January 28, 2010 at 8:56am

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