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25 HUDs to Close a Bank of America HAFA Short Sale
I will forever recall this short sale as the deal that demanded 25 HUDs to close a Bank of America HAFA short sale. I am only half joking with clients when they ask me about a Bank of America HAFA short sale. I say: “You would rather poke out your eyes.” Like with any short sale, there is truth in the pain. The pain, I tell sellers, is simply an accurate description of the agony that other Bank of America HAFA short sale sellers have shared with me, which I freely pass along to them. I don’t discourage a HAFA short sale for these Bank of America customers, but I want to prepare them for what lies ahead. As a Sacramento short sale agent — I share my experiences, good or bad — full strength, I don’t dilute.
We closed a Bank of America HAFA short sale yesterday that started in August of 2011. We were bright-eyed and bushy tailed back then. Our HAFA package was completed on that warm August day when we initially signed the listing paperwork. We started the transaction with UTLS, which later changed to AMO, which was then transferred to AMS, and I’m not sure who we were talking to when it closed, but it might have been REDC. I lost track. It was no longer important to count the third-party vendors as it was to the count the number of HUDs we supplied to them.
I tweeted the Bank of America social media team. I contacted the Executive Office. We escalated the file. It did not stop the demand for a revised HUD — eventually 25 HUDs in all. First they wanted THIS on the HUD. Then they demanded THAT. We gave them THIS and THAT but they wanted THIS NEW THING. After they got THIS NEW THING, they wanted THIS again. We supplied THIS and they asked for WHATEVER. We gave them WHATEVER and they went back to THIS and THAT.
I’m not making this up. That’s the hilarious thing about a Bank of America HAFA short sale — you don’t have to make up anything to induce tears from your shrieks of laughter. You start to wonder if the bank is just messing with you or if it is really that inept. A client told me yesterday it’s definitely ineptness after I relayed this story. He showed me a letter he received from Bank of America. It said his loan was paid in full. It was an explanation of why the bank returned his August payment. Because his loan was paid in full. Except his loan is in default, and we’re about to open a short sale file. Needless to say, his short sale will not be a Bank of America HAFA short sale.
But the 25 HUD short sale that closed yesterday was not my longest Bank of America HAFA short sale. This lasted a short 14 months. Of course, when we finally received the short sale approval letter, the buyer who had patiently waited all of this time decided to cancel. That is not completely unexpected. We put the home back on the market and immediately received a ton of offers — some as much as $20,000 over the original buyer’s offer. I asked the buyer’s agent: Is the buyer dumber than a bag of nails?
The 28th of September came and went. Our short sale approval letter expired. Finally, the original buyer came to his senses and elected to close escrow. We received an extension, submitted at least 3 final HUDs and closed on October 5th. Which was good because Monday is a holiday and the auction is scheduled for Tuesday. The seller is very relieved that this short sale rollercoaster ride is over, bruised, but no broken bones.
The Short Sale Law of Averages
I think the law of averages says that for every three good things that happen, something else awful will happen. So, no matter what, I’m always ahead, right? Like receiving 3 short sale approval letters on a Monday (of all days) for 3 Sacramento short sales leaves room for something else to explode. I didn’t know if I would be able to pull two of those short sales out the fire. We had a huge disagreement between the second lenders and the first lenders. It was the usual disagreement: The first lender wanted to pay less and the second lender wanted more.
But in the end, they met in the middle. There was a bit of compromise. Negotiating a short sale is not always about power plays. It’s about give and take and options. It’s about having a Plan B and a Plan C. It’s about about patience and not letting personal feelings about anything enter the equation. Mr. Spock would have made a good short sale negotiator. James T. Kirk, not so much.
In the second short sale, it had been a long battle between two lenders as well. The bank originally wanted to give the seller many, many thousands of dollars. But the second lender refused to approve that scenario, and that was understandable. I don’t know if it’s because we wore them out with our incredible staying power or because of our luck that HAFA regulations had changed in June so we could give the second more money, but we finally brought both parties to an agreement.
Just as we’re patting ourselves on the back for a job well done, a short sale set to close this week blew up. All of a sudden the buyer backed out. Oh, he gave some lame excuse like they all do when they cancel but bottom line is he bolted. After 11 months of waiting for HAFA short sale approval from Bank of America. That makes little sense. We were so close to closing. This is like crawling across the desert without water to find a mirage.
See, agents often ask why I ask so many questions, why I insist on commitment, and this is why. Because we want buyers to close the short sale after we obtain short sale approval.
An Investor Can Do a HAFA Short Sale
This week I am working on listing several investor-owned short sales in Sacramento, one of which will be a HAFA short sale. People think that an investor — a non-owner occupant — can’t do a short sale, but an investor can do a short sale. An investor can even qualify for a government short sale program such as the HAFA short sale, or my very favorite streamlined type of short sale: the Bank of America Cooperative Short Sale. Unfortunately, though, the HAFA Supplemental from last June removes the seller’s incentive portion, the $3,000 cash for a short sale that typically goes to the seller, so there’s not much of a reason to do a HAFA short sale for an investor in California. You have to live in the property to get the $3,000. Which means the tenant gets the cash.
There is a big reason to do a HAFA from a bank’s point of view. The bank gets paid from the government to do a HAFA. You might think so what, the money is insignificant. What is it? $1500? Until you stop to consider that $1500 times 1,000 short sales is one and a half million dollars. Put another way: $1500 times 10,000 short sales is $15 million. You wonder why Bank of America is pushing the HAFA short sale? Besides the National Mortgage Settlement, there’s that $15 million multiplied over and over. You can’t get past the first stage in Equator until the seller talks with the bank about a HAFA.
But not every HAFA is a nightmare to do. Some you’d rather poke out your eyeballs, some not. Sometimes, it is necessary to do a HAFA because a regular short sale has too much scrutiny. The government continually changes how it handles its HAFA short sales. I am a CHS, a Certified HAFA Specialist. I paid attention in class. It used to be that the investor needed a definite hardship to do a HAFA, but that’s not necessarily true anymore. I suspect part of the HAFA process was overhauled because nobody was doing them. People were shunning the HAFAs because the restrictions were difficult to meet. But they’ve loosened up.
It used to be you had to live in the home, and now you don’t. It used to be that the mortgage payment had to exceed 31% of your gross monthly income, and now it doesn’t. It used to be that you had to show an extreme financial hardship, detailed in your hardship letter and documented by tax returns, and now you don’t. It used to be you couldn’t have large sums of cash in the bank and now it doesn’t matter. I had a client complete a Chase HAFA short sale, and he supplied bank statements that showed $80,000 in his savings account. It wasn’t an IRA or a retirement account, it was cash. His financials reflected disposable income. Yet, the government gave him $3,000 and Chase approved his short sale. Yes, a Chase Bank short sale with no hardship.
If you’re worried that you don’t have much of a hardship, and your lender is Chase Bank or Bank of America, you can probably do a HAFA short sale. Investor guidelines will dictate. You just gotta have the story. I find that Wells Fargo will do strategic short sales as well as long as the investor is delinquent. Although, as a Sacramento short sale agent, it is against the law for me to tell an investor or any seller to stop making a mortgage payment. I can’t give legal advice nor suggest a seller become delinquent. I am required to say if a seller stops making a mortgage payment, a seller could lose his or her home. But if you’re gonna lose the house anyway, what the hey.
Taxes for that Sacramento Short Sale
Time is running out to avoid paying taxes on a Sacramento short sale. The 2007 Mortgage Forgiveness Debt Relief Act expires on December 31, 2012. This is the law that exempts a short sale seller from paying taxes on forgiven debt for a personal residence. Will the law be extended? Most likely, if the past is any indication and the future continues to be as uncertain as it is. You know how they say history repeats itself. That’s because it does. And we have an election year. It’s in the 2013 budget.
Some of you may not recall what happened last go-around with this short sale tax issue. When it expired, it was not renewed right away for the following year. Sellers were closing short sales fearing the worst: that not only did they lose their home, but now the government would be sticking outs its hand and taxing them on the short fall difference. We had California taxes to deal with at the same time. It was a scary problem. Congress dinged around on the short sale taxation extension and finally granted the extension. Then our California exemption came through, too. Just in time for taxes. And it was made retroactive. We were all biting our fingernails.
I am working on a Bank of America HAFA short sale. Yeah, I know, I’m a sucker for punishment. I have a few of them. You can read all the government rules for HAFA about the timeframes to process a HAFA short sale, and they are pretty much meaningless. It takes Bank of America a good 4 months, on average, to approve a HAFA short sale. If you’re teamed up with a Green Tree mortgage in second position, God help you. Green Tree closes files after 90 days. So, you can see the problem. Not only that, but after 6 months, Green Tree sends its loans to charge off. It’s better not to have a short sale charge off if you can avoid it.
This particular seller is very concerned that she won’t close this year. I believe she will. It’s been 9 months already. You can get pregnant and give birth in that period of time. Bring a tiny new life form into being. But that HAFA short sale at Bank of America can’t close within a reasonable timeframe.
Your safest bet is to close your short sale escrow within the confines of the 2012 calendar year. That way there is no question. But if you have to rollover into 2013, do so knowing it’s a risk. Although, a calculated risk. Do you think the government will hang all of these short sellers out to dry? This Sacramento short sale agent says probably not. Not if history repeats itself.
Avoid a Short Sale Charge Off
The first thing you need to know about a short sale charge off is the bank is not your friend. But that is true for just about every aspect of a short sale. Sometimes, I want to grab people by their shoulders and shake them into understanding that the banks are not on their side. If you’re reading this right now, listen to me, your bank doesn’t care about you. The only thing the bank wants from you is the money you promised to pay.
If you’re about to embark on a short sale with your bank and you have accounts open at that bank, close them. Put your money elsewhere. Because the likelihood is your bank will close those accounts for you. A short sale makes you a bad credit risk. A charge off on the short sale is an even worse credit risk.
Banks charge off loans because they can deem them uncollectable. The time period varies but a charge off typically takes place after 4 to 6 months of missed payments. A charge off affects your credit report is an adverse manner. You might hear a short sale lender such as Green Tree or Citimortgage (One Main Financial) say you must make a payment on your second mortgage, for example, or it will go to charge off. If you can keep the loan from charge off, it is better for your credit report. Not to mention, once the loan goes to charge off, if it leaves the institution, it will most likely be sold to a collection agency.
I know it’s odd that there is a financial market for uncollectable debts. There are profit-making ventures that have figured out a way to monetize charge offs. Like a vulture swooping down to gobble up a decaying carcass.
However, there are drawbacks to a charge off. A collection agency could nix your short sale by demanding a much higher payment than any of the parties in the short sale can pay. If you’re applying for a HAFA short sale, it is possible the new collection agency does not participate in HAFA, and a charge off could disqualify you from HAFA. Not to mention, if a collection agency determines it can make more money by personally pursuing the borrower, it might reject the short sale all together.
I advise my clients to get legal advice because I cannot give them legal advice about a charge off. Logic says one should avoid a charge off, if one can. I’ve closed quite a few short sales in Sacramento in which a second loan has gone to charge off. As long as it stays with the same bank but moves only to another department, the delay in the short sale is generally not astronomical. Fortunately, thanks to California Civil Code 580e, a charge off is no longer considered recourse after a short sale in California, like it used to be. But it still doesn’t look good on your credit report. And it can mess up your short sale.
