Posted on 07/01/2009 1:45:15 PM PDT by BGHater
When her Edmonds condo went on the market, Mindy Moore thought she had managed to avoid foreclosure.
Moore listed the home in Edmonds for about $30,000 less than she owed on the mortgage. She thought the “short sale” agreement signed with the bank meant the bank would absorb the loss.
Then she discovered that her lender, Bank of America, might still come after her for the difference. That means she may have to let the bank take back her property, or file for bankruptcy because she can’t afford to pay up.
Experts say the wording, which was recently and quietly added to Bank of America’s short-sale agreement, could have major ramifications for a large group of distressed homeowners in Washington and across the country.
As one of the country’s largest home lenders — and the largest bank by deposits in Washington —Bank of America could end up pushing thousands more homeowners into foreclosure or personal bankruptcy, said Richard Eastern, a short sale consultant in Bellevue.
It’s unclear whether other lenders are following suit. But Bank of America could be harming itself with this tactic, Eastern says, because the foreclosures would have to be carried on its books until sold. Bank of America also owns Countrywide Financial, one of the largest mortgage lenders in the country.
“You’re trying to do the right thing by selling the house,” said Eastern, of his clients. “But now you’re going to owe them the difference. That’s huge.”
Bank of America said in a statement that it asks for a promissory note from sellers — the term used to describe the written promise to pay back the difference — to protect its “investors and shareholders from the losses in a short sale.”
“Many investors and mortgage insurance companies require this process,” according to the statement. The bank declined further comment.
While Bank of America’s short-sale agreement wording appears new, Kevin Kim, a short- sale consultant in Seattle, said other lenders have similar wording in their agreements that would require homeowners to pay the money left on their loan amount.
Bank of America’s short-sale agreement illustrates the financial complexities facing hundreds of Washington homeowners struggling to deal with underwater mortgages (in which the owner owes more than the house sells for). It also shows the tug-of-war between banks and borrowers as banks try to recoup as much money as they can from their failed loans.
As the foreclosure rate soars in Washington, and elsewhere, more homeowners are turning toward short sales in a last-ditch attempt to offload their property before foreclosure hurts their credit score, say short-sale experts.
Of the single family homes listed on the Northwest Multiple Listing Service, about 12 percent — or 4,400 — are listed as short sales, according to Eastern, who analyzed homes on the market. The Northwest MLS doesn’t officially track short sales.
But that’s only an estimate. The real number is likely much higher, as not every short sale is identified as such, he said.
The number also is growing. Although no local agency tracks those figures, short-sale consultants and real estate agents say the volume in Washington has jumped dramatically in the last year.
It’s not clear whether other banks will follow suit with Bank of America on short-sale agreements, but if they do, that would be “alarming,” said Jason Bloom, president of the Washington Association of Mortgage Professionals and vice president at Elliott Bay Mortgage in Seattle.
Bloom, who only recently learned about the issue, said at least two homeowners working with Elliott Bay Mortgage could be affected it. While Bloom isn’t sure why Bank of America would change its agreement, he said it’s likely the bank is attempting to avoid unnecessary short sales.
“They’re trying to recoup any of their costs and, at the very least, try and discourage some people who might be able to make it through without doing a short sale,” said Bloom.
Short sales could become a dead end for homeowners, said Eastern, who’s chief executive of Washington Property Solutions. And that would complicate the clearing of bad debts from the housing market.
About a third of the 150 homeowners Eastern is currently working with would be affected by Bank of America’s more stringent short sale agreement.
At issue is a sentence in Bank of America’s agreement that says its mortgage servicing arm “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.”
That means Bank of America could pursue a court order against a homeowner after the short sale is completed. Under Washington law, it would have up to six years to do so.
That’s a scary proposition for Moore, who doesn’t want to be on the line for thousands of dollars after her condo is sold. She bought her 600-square-foot home in 2006 and is struggling to make her roughly $1,000 monthly mortgage payment while working two minimum-wage jobs and paying student loans for nursing school.
She recently put the condo on the market for $100,000, about $30,000 less than she bought it for during the height of the market three years ago.
“I didn’t want to go into foreclosure, because that’s not good for anyone,” she said.
But that may end up being the cheapest option for Moore, even though it would affect her credit and ability to get financing in the future. Another option may be to file for personal bankruptcy.
“(The bank) is better off doing the short sale, because they’re going to net more money than in a foreclosure,” said Eastern.
Often, homeowners are able to negotiate that wording out of the contract to allow them to go through with the short sale, said consultant Kim.
Still, dealing with the lender can often be a complicated and arduous task, making foreclosure seem almost like a relief.
“If you Google ‘short sale’ and ‘misery,’ you’ll probably find 1 million hits,” Kim said.
It sounds like some kind of scheme for the bank to write off the debts as “other bad loans” by using promissory notes, instead of showing the losses as being on bad mortgages. Call me suspicious....
God forbid the lady actually pays back the money she borrowed. What is with these people. Do they expect a business to take the loss? Do they expect taxpayer money should be used. For Pete sake, take friggin responsibility for your own doggone actions.
Pay your loans, or suffer the consequences.../p>
In the state of Washington, a lender cannot go after a mortgage borrower for a difficiency. I don’t believe that she can waive that statutory provision and if she did, she can claim fraud or common law fraud. She needs to find the statute and send a letter to the bank.
In the state of Washington, she’d be better off just turning it over to the bank since the bank can’t sue her for the difference; or just stop making payments until it is forclosed. She can use the money she saves to get on with her life once she is evicted.
My DD and her DH are in a housing mess right now - they have a home that had burned, the “flipper” used the burned wood that had sat in the weather, now they have mold and other assorted problems. The fire damage was never disclosed - they found out when a neighbor showed them pictures of the house on fire.
The lawyers advice? Let the house be forclosed on.
I’ve found a foolproof trick for avoiding foreclosure. Pay back the money you borrowed, as you agreed to, when you borrowed it.
so short-shrifting people through the use of hidden fine print is only acceptable if ObamaGov is doing it?
If the promissory note is unsecured, she could still take bankruptcy after the sale and tell B of A to shove it!
parsy, who believes in playing hardball with yankee banks
The deficiency rule varies from state to state. Here in Oklahoma mortgages and the law will make a borrower liable for any short fall in the sale price of the house and the balance of the mortgage. The result is the same whether it is a short sale or a foreclosure. Often the settlement of this difference is negotiated to something less than the full amount because the borrower can take bankruptcy to wipe out the deficiency. But our laws prevent someone who has other wealth from having a free option of keeping the gains while sticking the bank with the loss if values go down.
Other states have the prevent by law a lender from pursuing a deficiency. This makes all home loans a non-recourse loan. It sounds like Washington is one of those states. What is immoral on Bank of America’s part is trying to make the borrower accept liability for the deficiency as a condition of agreeing to the short sale without telling the borrower of the foreclosure option. Perhaps it is not their duty to tell the borrower. But it sounds like they are trying to get something that state law says they can’t have. They made the loan in Washington knowing what the law is.
Personally, if I were a lender, I would redline any state that has the no deficiency law. It allows borrowers to have the heads I win, tails you lose option on any house they purchase.
Seriously, this does not add up... Working for minimum wage, paying for nursing school loans? Is there some major glut of nurses on the market suddenly?
I did it this way...Lived in dorms or apartments while going to school, graduated, got a job, used the income from the job to buy a house...That is still legal, right?
Yes the business should take a loss! That is part of putting your money out to loan. What, do banks and mortgage companies wear dresses and we have to protect them from hits? They should have thought about that when they were paying out millions in bonuses.
parsy, who has clobbered a couple of mortgage companies
She must really suck as a nurse.
A couple of observations. First, even if she's working 80 hours a week (which I doubt), she's only grossing about $2600 a month. And she thought she could handle a $1000 a month mortgage? Second, she clearly didn't finish nursing school, or she wouldn't be working at minimum wage jobs, so I wonder what happened there. Third, she obviously didn't bother to read the short sale agreement or have an attorney look it over before she signed it. Taken all together, a pattern of some pretty poor decision making on her part for quite a while. Did the bank do something a little sneaky? Maybe. But the truth is the only reason she's where she is today is because she made some bad choices. Time to grow up, accept responsibility, learn the lesson, and promise herself to not be such an idiot next time. But of course, whining about how you've been "victimized" is so much more in vogue these days...
I have friends who were not in financial difficulties, but needed to move because of job relocation. They purchased a home in the “new” town, and put their other home on the market. It sold as a short sale, mainly because of price devaluation in the real estate market in Florida...but the bank insisted they take a 20,000 dollar lien against these folks present home, in order to complete the short sale.
So what happened to all that bail out money? I hear that the ‘adjusted’ mortgages are not being utilized.
She probably went to a for-profit school for a “nursing assistant” associate degree. It’s a huge scam. The jobs pay little more than minimum wage and the school makes out like a bandit.
Everyone who can be foreclosed on will be foreclosed on. Politicians from both sides of the aisle will sincerely utter, “I am from the government and I am here to help you. The Check is in the mail....”
The banks were rescued, not the debtors. The bankers and mortgage brokers who got paid commissions to write dubious government backed loans will get commissions to write re-finance agreements, and etc...
It would have been much less painful to pay off the mortgages in arrears. Instead, the banks now have the money to pay attorney’s fees, interest, taxes and maintenance on the properties that they are in the process of acquiring.
By servicing the debt on the entire daisy chain of debt, we encourage more bad behavior.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.