Bank of America can review a short sale offer while the loan is in an active bankruptcy. To complete a short sale and issue the approval letter, the bankruptcy documents must be filed and approved by the court. Any final agreement will require bankruptcy court approval.

Homeowner(s) should consult with their Bankruptcy Counsel about how these programs could affect their mortgage and their bankruptcy case.

When a loan is in bankruptcy, there is an Automatic Stay, also known as a "hold," of any collection activity placed on any and/or all debts to which the debtor is a party. Before the bank's short sale negotiator can discuss the short sale, Bank of America must have written authorization from the Homeowner(s') Bankruptcy attorney on the law firm's letterhead to discuss loss mitigation options with the borrower. This is in addition to the Bank of America Third-Party Authorization Form needed from the borrower to speak to the bankruptcy attorney and the short sale listing agent. / realtor.

If Homeowner(s) is/are currently in a bankruptcy proceeding, or have previously obtained a discharge of this debt under applicable bankruptcy law, all communication and notices are for information purposes only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt. The Homeowner(s) is/are not obligated to discuss their home loan with Bank of America or enter into a short sale agreement or other loan-assistance program. Customers should consult with their bankruptcy attorney or other advisor about their legal rights and options. For a short sale to be processed to completion for a loan in bankruptcy, Bank of America must receive one of the following releases issued by the bankruptcy court:

  • Granted Motion to Sell*
  • Granted Motion for Relief from Automatic Stay with noted short sale negotiation*
  • Dismissal
  • Discharge with Abandonment, Closing Order, Final Decree, Trustee No Asset Review
*A granted Motion differs from a requested Motion. Note: If Homeowner(s) receive(s) a discharge under a Chapter 7 a bankruptcy proceeding: discharge releases the Homeowner(s) from personal liability for certain specified types of debts. The Homeowner(s) is/are no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the Homeowner(s) from taking any form of collection action on discharged debts, including legal action and communications with the Homeowner(s), such as telephone calls, letters, and personal contacts. Although a Homeowner is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. Bankruptcy Frequently Asked Questions

1. What additional documents will be needed to complete this short sale? Bank of America must have written authorization from the Homeowner's bankruptcy attorney (on the law firm's letterhead) to discuss loss mitigation options with the Homeowner. The customer and the attorney may determine that they do not want to give this authorization and the short sale can be negotiated through the attorney. This attorney authorization permitting Bank of America to speak to the Homeowner(s) is in addition to the Bank of America Third-Party Authorization Form needed from the Homeowner(s) to speak to the bankruptcy attorney and agent. Communication cannot occur with the real estate agent/Homeowner(s) until the bankruptcy attorney's written authorization on the firm's letterhead and the Bank of America Third-Party Authorization form are received.

2. When will I receive the approval letter? An approval letter cannot be issued until the releases, identified above from the bankruptcy court has been received. Once the release is received, the file can be submitted for approval to the appropriate investor(s) and/or mortgage insurance company. The file will then follow the normal approval process to ensure it meets investor requirements.

3. Why can't you approve a short sale file while waiting for the bankruptcy to be released? An approval must follow the direction provided in the release by the bankruptcy court. That is why a short sale will not be approved unless a court order permitting the sale is first received.

4. What fees can be paid related to the bankruptcy proceeding? Any fees that are directly associated with the bankruptcy would be subject to further review and approval. For example, if Bank of America incurs fees to file a pleading to approve the short sale in the bankruptcy court, Bank of America may seek permission from the bankruptcy court to allow such attorney and filing fees.

5. Can a homeowner qualify for a Home Affordable Foreclosure Alternative (HAFA) incentive while in bankruptcy? Yes. However, any funds going to the Homeowner(s) through state incentives or other incentive programs must be properly disclosed and handled in accordance with bankruptcy legislation and local rules.

6. Are additional documents required for a short sale when the homeowner is in active bankruptcy? Yes. Two additional documents are needed for a short sale that is in active bankruptcy:

  • An attorney authorization letter from the bankruptcy attorney providing permission to speak with the Homeowner(s) is required. This is separate and in addition to the required Bank of America Third-Party Authorization Form signed by the Homeowner(s) permitting Bank of America to speak with the bankruptcy attorney and the real estate agent.
  • Bank of America must receive a release issued by the bankruptcy court (listed above).

Visit the Agent Resource Center at bankofamerica.com/shortsaleagent for educational guides, news and resources to help agents complete a short sale at Bank of America.

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Replies to This Discussion

Jason-  
First time I've posted a response.....I'd love to know if you work for BofA or how you have this valuable information.  I am a buyers agent that put an offer on a short sale for some clients mid June, and got approval letter Sept. 10th,  We were 10 days from closing mid Oct. and the seller filed BK inluding his house without telling his attorney that he had a house even on the market let alone that he had a SS going on that was 10 days from closing.  We went through the steps his BK attorney told me we had to do to get the house out of the BK and able to close.  We paid $750 for the "Motion to sell" (split between my buyer, me, and my broker....seller didn't care to do anything about it) to get the process done and waited out our time for the creditors to be notified and the judge to sign the motion.  Then, went forward to close and realized the day before signing we needed a small change on the HUD.  All parties signed, we waited for the HUD to be approved by BofA and suddenly that night, they pulled the plug saying that when there is an active BK, they won't do anything till it is discharged.  I spent 2 + weeks calling/emailing EVERYONE that I could reach or get to listen.  The attorney does this all the time and has never had an issue.  He even contacted the attorney representing BofA for Idaho who asked the contact info we were dealing with so he could call and get it straightened out.  It's been well over a month now.  I finally gave up as it as sucking the life out of me trying to MAKE them understand that we had exactly what they said we needed (the signed form from the judge, and that they don't need to wait for the BK to be discharged.....as that's what the attorney told me).  So, What do you think is wrong?  Now the file was closed out in Equator and is reassigned to the same Negotiator that shut us down.)  We just rewrote the deal and uploaded it to Equator (though because of some other issues I haven't gone into and the fact that the seller is just a very unkind and rude person to deal with...this deal has bad mojo by now....I have been trying to find something else for them but so far nothing is available.....)......and we are waiting for the negotiator to tell us what to expect now as far as time frame, etc.  Will they start us over like we are brand new short sale?  Because of what we've been through they will help get this rushed to the end within a week or two?  BTW...my clients have been homeless since July, sold their home out of the area and came here and been living 1 1/5 hours from the property at his dad's basement....driving their kids (5 under 12 yrs)  to the appropriate school area for the house.  Any help you can give me would be great.  I posted a post about this a couple days ago and hadn't heard from anyone.  ;)  Thanks

Laurel-

Sorry to hear about the difficulties you and your clients are experiencing. It sounds as though the granted motion to sell was received and submitted but that the file was closed out due to the active bankruptcy which would lead me to believe BofA failed to properly upload the granted motion to sell to the file and when the negotiator reviewed the file they realized this was missing and closed out the file which is standard procedure for all of the banks. You need to confirm BofA still has a copy of the granted motion to sell and request that the file be escalated due to BofA's mistake. I would contact the Office of the CEO and President and make them aware of the issue. I would also threaten to contact the Comptroller of Currency if they don't make this file a priority and put the file on the fast track to close! The bank is obviously going to be busy focusing on the files it is able to close out before years end and thus you're going to need to be aggressive! Your clients are lucky to have a dedicated and tenacious professional working on their behalf! Good luck!

Jason Opland

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