Bank of America Cancels a Short Sale

This Sacramento short sale agent spotted a freaky warning in Equator yesterday about how Bank of America cancels a short sale. It’s a Cooperative Short Sale. My seller is receiving more than $10,000 to do this Sacramento short sale. It’s been smooth sailing for her from day one — no financials, no hardship letter — and the docs are in title, knock on wood. The warning was from Dignified Transition Solutions (DTS) and read: LOANS ARE MORE FREQUENTLY BEING SERVICES RELEASED FROM BANK OF AMERICA, WHICH WOULD VOID THE DEAL. This means exactly what you think it means. It means that even though we have short sale approval and are about to close escrow, Bank of America can cancel the short sale.

The buyer has completed all of her home inspections. She paid for a lot of inspections, too: roof, chimney, general home inspection, pest report. Yeah, yeah, I know what you’re thinking. You’re thinking so what, the buyer does not have a contract with Bank of America. The buyer has signed a purchase contract with the seller, and that purchase contract is contingent upon bank approval of the short sale — even though it is a preapproved Cooperative Short Sale, the bank still needs to approve the purchase offer.

Yet, you probably wonder how can Bank of America cancel a short sale? The bank is not the investor. This is the little known but all-important fact in most short sales. Often, the bank is only the servicer, it services the loan, collects the payments (or non-payments) and disburses the money on behalf of the investors. Investors are increasingly pulling that servicing from Bank of America.

I had another Bank of America Cooperative Short Sale yanked by the bank right after the Equator counter offer. Here, we were waiting for what we so innocently presumed would be the short sale approval letter when we were abruptly notified that Bank of America was no longer servicing the loan. It had been transferred to our buddy, Seterus. Which was once, believe it or not, IBM. What a sad graveyard for typewriters and a former technology giant. We started the short sale over from scratch with Seterus. No cash for this seller. No guarantee the short sale will be approved again, either.

Another Cooperative Short Sale at Bank of America is destined for another servicer as well. We went back to the bank negotiator to ask for a short sale extension and were informed the file was being held, pending a servicing release. At least the bank had the decency to hold this pending release but it’s also now being released. This investor is Fannie Mae. I don’t know who the other investors are in my other Cooperative Short Sales — just that those investors are not a government sponsored entity (GSE) like Fannie Mae. That information is unavailable. I do know that we have Fannie Mae saying: Adios, B of A. And don’t let the door hit you in the butt.

Still, the question is how can Bank of America cancel the short sale just before closing? Like with most things, the answer lurks in the legal documents. In the short sale approval letter, Bank of America says, “We may terminate this agreement at any time if we have evidence of: blah, blah and

“The transaction does not comply with our requirements, policies and procedures.”

If Bank of America is no longer the servicer, you’re hosed. So, the moral of this story is it ain’t over until the fat lady sings. Until you close escrow, that Cooperative Short Sale at Bank of America could be at risk.