BofA wording may cause more foreclosures

BofA wording may cause more foreclosures

Originly by Kirsten Grind: When her Edmonds condo went on the market, Mindy Moore thought she had managed to avoid foreclosure.

Moore listed the home in Edmonds for about $30,000 less than she owed on the mortgage. She thought the “short sale” agreement signed with the bank meant the bank would absorb the loss.

Then she discovered that her lender, Bank of America, might still come after her for the difference. That means she may have to let the bank take back her property, or file for bankruptcy because she can’t afford to pay up.

Experts say the wording, which was recently and quietly added to Bank of America’s short-sale agreement, could have major ramifications for a large group of distressed homeowners in Washington and across the country.

As one of the country’s largest home lenders — and the largest bank by deposits in Washington —Bank of America could end up pushing thousands more homeowners into foreclosure or personal bankruptcy, said Richard Eastern, a short sale consultant in Bellevue.

It’s unclear whether other lenders are following suit. But Bank of America could be harming itself with this tactic, Eastern says, because the foreclosures would have to be carried on its books until sold. Bank of America also owns Countrywide Financial, one of the largest mortgage lenders in the country.

“You’re trying to do the right thing by selling the house,” said Eastern, of his clients. “But now you’re going to owe them the difference. That’s huge.”

Bank of America said in a statement that it asks for a promissory note from sellers — the term used to describe the written promise to pay back the difference — to protect its “investors and shareholders from the losses in a short sale.”

“Many investors and mortgage insurance companies require this process,” according to the statement. The bank declined further comment.

While Bank of America’s short-sale agreement wording appears new, Kevin Kim, a short- sale consultant in Seattle, said other lenders have similar wording in their agreements that would require homeowners to pay the money left on their loan amount.

Bank of America’s short-sale agreement illustrates the financial complexities facing hundreds of Washington homeowners struggling to deal with underwater mortgages (in which the owner owes more than the house sells for). It also shows the tug-of-war between banks and borrowers as banks try to recoup as much money as they can from their failed loans.

As the foreclosure rate soars in Washington, and elsewhere, more homeowners are turning toward short sales in a last-ditch attempt to offload their property before foreclosure hurts their credit score, say short-sale experts.

Of the single family homes listed on the Northwest Multiple Listing Service, about 12 percent — or 4,400 — are listed as short sales, according to Eastern, who analyzed homes on the market. The Northwest MLS doesn’t officially track short sales.

But that’s only an estimate. The real number is likely much higher, as not every short sale is identified as such, he said.

The number also is growing. Although no local agency tracks those figures, short-sale consultants and real estate agents say the volume in Washington has jumped dramatically in the last year.

It’s not clear whether other banks will follow suit with Bank of America on short-sale agreements, but if they do, that would be “alarming,” said Jason Bloom, president of the Washington Association of Mortgage Professionals and vice president at Elliott Bay Mortgage in Seattle.

Bloom, who only recently learned about the issue, said at least two homeowners working with Elliott Bay Mortgage could be affected it. While Bloom isn’t sure why Bank of America would change its agreement, he said it’s likely the bank is attempting to avoid unnecessary short sales.

“They’re trying to recoup any of their costs and, at the very least, try and discourage some people who might be able to make it through without doing a short sale,” said Bloom.

Short sales could become a dead end for homeowners, said Eastern, who’s chief executive of Washington Property Solutions. And that would complicate the clearing of bad debts from the housing market.

About a third of the 150 homeowners Eastern is currently working with would be affected by Bank of America’s more stringent short sale agreement.

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