Hi folks. Do you ever wonder what happens after the Short Sale? If the lien holder states they will be contacting you after closing to make arrangements for you to pay the rest of the money you owe....do you believe them? Well you should.
I had a closing a few months ago where Bank of America was the 2nd lien holder. The lien was a HELOC (home equity line of credit) for $65,000. For those of us that work Short Sales we know that these HELOCs can be very unforgiving. The reason is that these loans are normally taken out after the property was purchased. In many cases the funds from the HELOC were used to purchase "toys", e.g., furnishings, cars, vacations and other goodies that having nothing to with real estate. The holder of the HELOC, in this case Bank of America, are not too anxious to take a loss while the borrower is driving around in a free and clear Hummer.
When it came time to negotiate the HELOC on the property the best we could do was get them the $6,500 allowed from the 1st lien holder, GMAC. Bank of America accepted this amount.
However, Bank of America's Short Sale approval letter specifically stated that the deficiency of $59,500 was to be charged off as a COLLECTIBLE balance and that they would be in contact with the borrower to make arrangements to pay this balance. Bank of America would not forgive the "Short".
The seller was however being forgiven almost $300,000 from GMAC on the 1st lien In fact, GMAC was stating that the 1st would be satisfied in full. Being that this was the case the seller decided to accept the terms from Bank of America, close the transaction and deal with the shortage later.
The transaction closed and all was well.
About 90 days after closing Bank of America contacted the seller to make arrangements for the money he still owed. The Seller negotiated with them for a couple of weeks and was able to get Bank of America to accept $2,500 as payment in full!
So in the end it all turned out very well. For a total payment of $2,500 the seller was able to be unencumbered from a combined debt of more than $350,000!! And he avoided having a foreclosure on his credit. I would say he did very well. What say you?
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Hi Bryant, I agree the owner did very well in their negotiation!
Incredible. And, that was really some negotiating....I find it difficult to believe that BoA accepted that amount. Especially in light of the Hummer. Hmmm.....
Broker Bryant,
Enjoyed reading this post. I haven't done very many short sales so I truly enjoy reading the posts written on details, by other members. Thanks for sharing.
I would say: hirer that negotiator he's great!
Bill
Bryant,
Actually here in NC I have not had one yet go after the seller. Occasionally they may get a 1099 at the end of the year but that is not always guaranteed. I know in Florida it has been a much different climate surrounding short sales. But, to answer your question yes your client was very lucky.
I have clients in the same hummer, BB. The problem that I see is lawyers often tell these guys to let it go to foreclosure and then deal with the charge-off, which might not be the best way to go. As shown in your case. With sellers, it's the F-U attitude sometimes -- it feels good to say that to the lender but is it in the seller's best interest? Or is the seller better off doing the short sale and then negotiating? I say it's probably the latter.
Amazing that BOA would accept $2500 on $59.500. I would say that the seller did very very well.
Fantastic!! What a great result! I am glad things went so very well.
That seems a great outcome for the owner, they paid about 4% of what the judgement was asking. They should be very pleased.
Bryant: This is a timely post. I had a seller call me yesterday and tell me that the B of A calls have begun and we were thinking about 20%. I'm going to call her right now and tell her that she may be able to get 5%! Thanks
I figure the best thing for a borrower facing a deficiency after the closing is to simply make them an offer to settle the debt for pennies on the dollar. If the borrower owed 50K on a HELOC, tell them you might be able to get your hands on a little money if they will take a deep discount settlement. Hopefully you can get them to take 5K as payment in full for the 50K debt and be done with it. Most of the collection agents are buying the HELOC debts for next to nothing anyway, so anything they get is profit.
BB - The seller did do very well and I'm pretty shocked BOA accepted $2,500 and didn't go for the full $59,500.
Great post Bryant. Many people here in AZ have been under the mistaken idea that the heloc lender won't come back on to collect - espescially if a bit of time has gone by. They do have a number of years to come back after them. We'll see how this plays out in the next few years.
Glad to hear this guy was able to settle for such a reasonable amount - amazing actually. So if they had not settled would this have forced them into a BK?
Good deal for the seller. Hard to see why BoA wouldn't ask for the $ at closing, but nothing they do really surprises me.
That's incredible! My client completed a similar short sale with BofA as 2nd. Few months after, she was contacted by BofA trying to collect the balance. I'm going to tell her this great story! Thanks for sharing.
Jane Pacheco
Great deal for the seller. Some sellers would refuse to pay anything just because they go in with the notion of walking away free and clear only to find out they can't. HELOCs are like an open check book...they've used the money already for other things. Some think the bank lets them walk with free equity!
That is a pretty good outcome. I think that sometimes agents and their clients forget that it is common for debt to be negotiated down so why not negotiate the amount down after the fact if the lien holder does not forgive the shortage?
I think that's beautiful. Seller was really let off the hook. Twice!
And do not forget what some HOA's are doing before they will let you close. A buyer near here got hit with a $14,000, including the cost of repainting the exterior and a $600 mailbox. Wisely, he ran the other way even though he had waited ( I believe) over a year to close due to the bank dragging its feet.
Here is the link to the local media if you want to see the article. Is something we need to be aware of as HOAs try to recoup+ costs, etc. http://www2.tbo.com/content/2010/sep/05/na-homeowner-fees-like-extortion/
Wow! That is a great result! I think I am finally getting that FHA Short Sale closed that you helped me with!
Thank you for this interesting information
Hadn't had any clients being pursued for deficiency in the last year. I guess it is that old blood from a turnip thang.
Great result for the seller, I doubt everyone will get so lucky.
BB ~ This is very timely for me also. I am going through a Short Sale right now where the Bank said the seller will owe the deficit. I wonder what will happen? The folks really have no money to pay. Thank you for posting this.
Yes it is a great outcome. Thank you for sharing your clients experiences. My clients who successfully closed short sales recently are hoping for a similar outcome. Some of the lenders claim they will only pursue the borrower if they suddenly become wealthy or win the lottery. It can't be that simple.
Yes, very timely information. As long as the seller is prepared to do the negotiating WITHOUT their Realtor going to bat for them afterwards. We must remember to always refer them to LEGAL counsel!
Read on the "book' first. Thought I would come here and comment and get my 25 points. I am in TN getting my Broker Prep. Wow so different here on how they do Short Sales and Foreclosures. Besides not having very many.
They have NO redemption period.
Sold in sherriffs sale and then it is gone.
Most everyone in my class will not do them...I know why folks need to get licensed in everyday...way different.
Deficiency Judgements...they just assume the seller will get one. Yikes
You did good for your seller.
Hey BB, I have said before we are just getting our share of short sales here, many people are floundering around. Scary...
Having said that I was in conversation with 2 agents recently who said I didn't know what I was talking about when I said that the lender could go after my homeowner with a deficiency judgment, any homeowner, who knows at the start of the process.
I shudder to think that this type of info is being told to home owners. You did great for your client, but what about those who are floundering out there full of misinformation.
I couldn't get one agent who put in a really low offer on my short sale to understand. She was one of the above. They are underwater by oh, say.. more than 130,000 the second is a HELOC, I have no idea what the lender will decide to do. Her take? Why should I be worried about getting a fair market value price on the home, after all, they will just get to walk away from everything.
That's a great negotiation job! The sellers were very blessed with that outcome.
He got very lucky, but we can never tell a customer they won't be charged the full amount. You never know what the bank will do or won't do. You just have to hope and pray for the best.
Great post, I feel as long as our clients don't stick their head in the ground the outcome considering the problem could be mitigated.
What a great story Bryant - BOA can be harsh on these HELOC Loans...
Congratulations Missy !
This sounds like a very good outcome for your seller to me. Avoided foreclosure and major deficiency.
Good to hear such a great outcome on a BofA Heloc! I have a couple Bank of America short sales with Bank of America helocs; I'll be on the lookout for this!
I just sent this to my neice very good information for her right now! thanks
Now that is a story that came out well. I am suprised that they accepted $2,500.
I'd say good outcome. Your Sellers were lucky, or BoA was having a good day.
Thank you for writing this post. Every homeowner wonders what will happen after the Short Sale is accepted especially when their is a home equity line of credit. It is always helpful when a distressed homeowner can get a feel for what others have gone through and what is possible. The seller did awesome!
Bryant, Great job. I'd like to see from others what the average settlement for these deficiencies are. Is this an odd ball or is it in line with the market for this kind of thing? I've heard thrown around something like 10 cents on the dollar but never get much in real life scenarios. Thanks for sharing your results.
BB,
Amazing settlement here! Often a bank decides something was better than nothing but this is wild.
Here in San Diego short sales can go either way--it closes or the seller decides that they are not going to worry about deficiency judgments and goes to foreclosure.
Two of my clients after accepting a short sales, filed bankruptcy immediately after the close of escrow upon advice of there attorneys.
Woo hoo! You did so much better than good with this Seller. Holy cow. :)
Hey guys. Sorry it took me so long to get back here. I've been going to work too early and by the time I get done I'm mentally spent!! As always I appreciate all of your comments.
I always ask my sellers to keep in touch with me after the short sale. I want to know how they handle these issues and what the banks are doing after we close. I also want oo see the satisfaction fo lien once they are recorded. The more information I glean now the better prepared I'll be to help folks in the future.
John #20 HOAs in Florida are getting out of control to say the least. It's hard to fault them though. They have really taken a beating with so many folks not paying.
Damon. #21 Happy to hear you are almost done with that FHA PFS. I've been having issues lately with the values coming back too high on te HUD 90045. I try to dispute them but they take so long.
And big kudos to my seller for doing such an awesome job!!!
BB, thanks for sharing this post on what a seller was able to do after the short sale! Will definitely file this away for future use :)
If they wanted the seller to pay the difference, I would just let it go back to the bank!
BB, another good job done for what should be a very greatful seller! And another good practical example/case study of how short sales REALLY GET DONE! Killer job dude! Keep on rockin!
This is true.
First, this happens because on a HELOC the money was "consumed". With the first lender, even though there was a huge deficiency, the seller did not "consume" any money. It was just the fate of the market.
And yes, for a balance that the bank states will be still collected, the bank knows darn well that the seller always has the option to declare bankruptcy, so they will probably negotiates to get whatever they can because they know if they press too hard, the seller will look to press the "BK" button.
THat's really great that the seller only had to pay that amount...and he still get's to keep the Hummer.
BB, That is a great story. A home run for everyone involved.
Keep up the great BLOGS!
Wonderful outcome!
Great Post! We were recently reminded all our short sale customers to contact both professional Real Estate CPAs and Lawyers to ensure they understood all the ramifications of their short sale.