Beware of the Short Sale Service Release

When writing to another agent today about short sale service releases, it made me realize how little the average consumer knows about this practice. A service release happens when a bank sells the servicing rights for a loan to another bank. Some banks are the actual investor, the entities that own the note, but many banks are nothing more than a collection agent for the loan. The bank takes the money from the borrower, pockets a fee for its services, and then distributes the rest to the investors. It has other duties outlined in the PSA such as handling the foreclosure, which pays the bank even more money. That’s one of the reasons why some banks can prefer foreclosure to short sale.

Bank of America seems to be in the middle of a big sell off. It is selling servicing rights to other banks. At first I thought maybe it was Fannie Mae who fired Bank of America, but it seems to be the other way around. In one such Sacramento short sale, we had put a pre-approved Bank of America Cooperative Short Sale into escrow. The seller had signed the Borrower Acknowledgement of Interest — known in short sale lingo as the BAI. This is not a commitment on the part of Bank of America but most people take it as such.

The short sale progressed smoothly, as most Cooperative Short Sales do these days. We received the counter in Equator, which removed a few miscellaneous fees from the purchase contract that Fannie Mae would not allow. Usually, when we approve the counter offer, we get the short sale approval letter anywhere from 24 hours to 10 days later. Instead of receiving the approval letter, though, we received a decline of short sale because the bank had sold the servicing rights to Seterus. Our old friend, IBM.

Seterus does not Cooperative Short Sales. Seterus does traditional short sales. Long story short, Seterus rejected the short sale. The seller did not receive her $3,000 relocation incentive. The buyer did not buy the home. The entire transaction blew up, and there was nothing we could do about it. The home went to foreclosure. If you don’t think service releases produce horrific results, here is one for the record.