I have been selling short sales for a long time, so I was there in the beginning in 2005 with a Bank of America short sale. I know the pain -- the torture, the agony -- first hand. Since 2010, when Bank of America moved to Equator, its short sale process began to dramatically improve.
Due to a proactive stance versus reactive, Bank of America has since knocked its approval time from 12 to 18 months down to 2 to 3 months. Some short sales are approved in as little as four weeks. But the Cooperative Short Sale is different.
Why Bank of America Is Offering the Cooperative Short Sale
Banks are not in the business of making life easier for its customers much less its short sale candidates. Banks are in the business to turn a profit. The main reason Bank of America has initiated the Cooperative Short Sale is to increase the bank's bottom line profit.
The bank faced several problems:
- Bad reputation for taking too long to process short sales
- Due to length of time to buy a short sale, buyers were making lowball offers.
- Unsure of how to do a short sale, many agents were pricing short sales inappropriately.
It would seem that Bank of America came to this conclusion: If Bank of America could choose the list price of the short sale and approve that short sale in advance through a Cooperative Short Sale, it would gain control of the short sale transaction. The bank would also greatly increase the odds that a buyer would pay market value if a buyer was not forced to wait months and months for that short sale approval letter.
How to Do a Bank of America Cooperative Short Sale
You can hire a real estate agent if you want to, but it's not a necessary step to get preapproved for the short sale. I help my sellers get preapproved but not every short sale agent offers this type of service because we don't get paid to do it. Here is the old way the program worked in a nutshell:
- Write a hardship letter.
- Send the hardship letter to the bank and ask the bank to do a Cooperative Short Sale.
- Follow up with Bank of America weekly to make sure your Cooperative Short Sale is being processed.
The bank might request other documents but might not. The program is streamlined. This means the bank will run a credit report. If your FICO score is very low and your credit report is terrible, Bank of America probably will not ask for supporting documents. It will simply approve your Cooperative Short Sale. This process can take anywhere from 30 days to 3 months or so.
Beginning May of 2012, the program has changed. The new rules allow your real estate agent to initiate the Cooperative Short Sale in Equator for you without a hardship letter.
If you want to do a strategic short sale, the bank will ask for supporting documentation. The bank might also ask for a seller contribution. Due to SB 458, a contribution it not allowed in the state of California. But the beauty of a Cooperative Short Sale is the sales price is approved and the seller is approved. The Cooperative Short Sale can also pay a seller up to $2,500 in relocation assistance, providing the seller qualifies.
After you receive an offer, Bank of America should respond to that buyer's offer within 10 business days. I haven't had that happen -- it's been closer to 30 -- but that's still a good response time, and it's possible those files were not portfolio loans. The upside is there are no surprises.
Drawbacks to Bank of America's Cooperative Short Sale
- Incorrect Pricing Possibility.
After the Cooperative Short Sale is approved, your short sale agent will list the home and market it at the approved short sale price. Hopefully, this is a realistic price. If it is not, you are hosed. That is the risk you take by participating in the Cooperative Short Sale program.
- Deed in Lieu.
Be aware if your home does not sell, the program allows for an automatic deed-in-lieu of foreclosure. You could lose your home if you cannot sell as a short sale. But consider this, if you're about to lose it anyway, what is the difference?
- Second Lender / MI Refusal.
If you have two loans on a short sale, you will always need the approval of the second lender to participate. If the second lender stands to make more money through a foreclosure, the lender might refuse to approve the short sale. Moreover, if the loan has mortgage insurance, the MI company will need to approve the sale as well.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California. Disclosure: Weintraub's investment portfolio contains shares of BAC stock.