Desperate BofA now paying short sellers $20,000 cash for keys

To avoid the morass of the Florida court system, BofA is now paying short sellers $20,000 to sell and return BofA its much needed cash.

Irvine Home Address … 18921 ANTIOCH Dr Irvine, CA 92603

Resale Home Price …… $764,900

I want a girl with smooth liquidation

I want a girl with good dividends

At Citi Bank we will meet accidently

We will start to talk when she borrows my pen

She wants a car with a cup holder armrest

She wants a car that will get her there

She is changing her name from Kitty to Karen

She is trading her MG for a white, Chrysler LeBaron

I want a girl with a short skirt and a

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Cake — Short Skirt, Long Jacket

The foreclosure process in Florida takes a long, long, long time. Florida is a judicial foreclosure state, and with millions of delinquent mortgage squatters and the lingering impact of robo-signer, BofA has given up on forcing people to leave via foreclosure, and has started to pay people to get out. Second mortgage lien holders must be thrilled, after all, they are the ones who will end up with the money.

Bank of America Offering Up to $20,000 to Florida Short Sellers

By Stefanos Chen | Posted Oct 11th 2011 5:00PM

It's not mortgage principal reduction, but it's a start.

WTF? Do I really care about the bogus opinion of this reporter to start the story? He makes this statement as if mortgage principal reduction is the answer to the problems in housing. Principal forgiveness is the the worst policy option. I certainly hope it isn't the endgame.

Further, if BofA is desperate, this is not the start of anything good for loan owners. It's a sign BofA is going to start clearing out its foreclosure pipeline which will reduce prices.

Bank of America is quietly rolling out an incentive program in parts of Florida in which they'll pay distressed homeowners up to $20,000 if they successfully short-sell their home, according to The Palm Beach Post.

A short sale is an arrangement in which the lender agrees to accept less than what's owed on the mortgage to avoid a lengthy (and expensive) foreclosure process. Foreclosures in Florida take an average of 23 months to be processed — nearly twice the national average, according to analytics firm RealtyTrac.

Therein lies the reason for this policy. The Florida court system is so bogged down with foreclosures, it is more cost effective for BofA to pay people to short sell rather than push them through the foreclosure process. If BofA doesn't get some of its capital back, they may not be around to complete the foreclosure process.

The pilot program, identified by BoA spokesman Rick Simon as the “short sale/relo incentive program,” is only being tested in Florida at the moment, due to the state's high volume of foreclosures. If the program is successful, the program may be launched elsewhere, he said in an email to AOL Real Estate.

Sometimes referred to as “cash for keys,” the money may be used to provide distressed homeowners “with the tools and resources necessary to transition out of their home with dignity,” the press statement says. In other words, there will be less chance that the homeowner will be tempted to vandalize the property on the way out.

This is a cash-for-keys deal, pure and simple. The contentious part will be debating over who gets the money. In the real world, the second mortgage holder is going to demand payment, and the loan owner is not going to want to turn over the money. Most borrowers have the belief that paying a second mortgage is optional, and that the second mortgage holder should lose everything because they took on that business risk. Of course, this is completely wrong, but that's what most people think. Plus, people simply want the money for themselves whether it's justified or not.

Trouble Thrives in Vacant Homes

In the humid climes of Florida, short sales are far more desirable to lenders than letting the house sit vacant in a foreclosure. Mold can ravage even the best built homes, and empty houses are prone to squatters and vandals. The $20,000 payout could be a drop in the bucket in comparison to the cost of maintaining a rapidly deteriorating home.

But there may be a major downside to the program for severely underwater homeowners. In recourse-loan states like Florida, the lender can seek what's known as a deficiency judgment — the unpaid balance left on the mortgage — even after a short sale is completed.

In such cases, much of the money could end up back into the bank's pocket.

If the same bank holds both the first and the second mortgages, this is less of a problem, but if another lender holds the second, they will not give up this money easily.

BoA's Simon said that the bank's guidelines “allow for the deficiency judgment to be waived,” but the bank reserves the right “to pursue collection” after the sale. That may not be a strong enough commitment, according to Broward County-based consumer defense attorney Margery Golant.

“The fact that they 'may consider' waiving the deficiency judgment means nothing to me,” Golant told AOL Real Estate in a phone interview. “It just fosters false hope.”

Hasn't everything the government and lenders done since the housing bubble burst been designed to foster false hope? I think so.

For Golant, who regularly sees homeowners with close to six figures of outstanding debt, even the full $20,000 would do little to get an owner out of the hole if they're still on the hook for the difference, she said.

“If they really were waiving the deficiency judgment, then I would think it could mean a meaningful approach,” Golant says. “But to say we'll give you $20,000, yet reserve the right to sue for the difference is not only not meaningful but deceptive.

Yes, it is deceptive. Perhaps BofA doesn't want to write the debt off on their books, so they can retain at least some valuation for this bad loan if they can sell it to a zombie debt collector.

Could It Work?

There is already a national precedent for what BoA is attempting – the Home Affordable Foreclosures Alternative (HAFA) program, which offers a $3,000 short sale “relocation” incentive. But so far the results have been less than encouraging. Since April 2010, HAFA has only completed 15,531 short sales nationwide, The Palm Beach Post reports, and the program is scheduled to sunset at the end of 2012.

Results have been less than encouraging? LOL! Completing only 15,531 short sales in a year and a half is a complete and utter failure.

Still, if BoA can put up some impressive numbers in its trial run, there may yet be hope of more aggressive financing options for America's thousands of underwater homeowners – like the often-trumpeted, mostly dismissed notion of mortgage principal reduction.

Statements like that give more false hope than any government or bank program. the reason the notion of mortgage principal reduction is mostly dismissed is because it is a really, really bad idea.

For Florida homeowners interested in participating in the program, here are some key points:

The program offers $5,000 to $20,000 to qualifying homeowners who complete a bank-approved short sale. The amount is based on the unpaid balance on the loan as of Aug. 2011.

Short sale must be initiated between Sept. 26 and Nov. 30, 2011, and closed by Aug. 31, 2012.

To learn more about the program, call 1-877-459-2852.

This program will likely spread to other judicial foreclosure states where BofA is having a hard time getting its money out.

Doubled the mortgage plus got a big HELOC

Meny casual observers of the housing market believe Turtle Rock may not fall because the homeowners there are generally longer term owners so there is less mortgage stress. Perhaps that is true, but perhaps not. Turtle Rock still had Ponzis, and today, we are featuring one of them.

  • This house was purchased on 12/30/1999 for $400,000. The owners used a $320,000 first mortgage and an $80,000 down payment.
  • On 7/5/2000 the owner obtained a $60,000 HELOC.
  • On 6/10/2005 they cashed out with a $650,000 Option ARM with a 1% teaser rate. It was a fatal mistake.
  • On 11/16/2006 they refinanced again with a 1-year ARM at $680,000.
  • On 7/26/2007 they obtained a $139,000 HELOC.
  • The quit paying in April 2010 at the latest and squatted for at least 15 months.

Foreclosure Record

Recording Date: 01/19/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 09/03/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 09/03/2010

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 07/27/2010

Document Type: Notice of Default

The 2005 Option ARM is what did them in. Once they doubled their mortgage, it looks as if they crossed the Ponzi limit. It was only a matter of time. They held out for five more years, but finally succumb to the weight of the accummulated debt.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 18921 ANTIOCH Dr Irvine, CA 92603

Resale House Price …… $764,900

Beds: 4

Baths: 2

Sq. Ft.: 2011

$380/SF

Property Type: Residential, Single Family

Style: One Level, Ranch

View: City

Year Built: 1968

Community: Turtle Rock

County: Orange

MLS#: S676762

Source: SoCalMLS

On Redfin: 7 days

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Single level 4 bedroom home in highly desirable Turtle Rock. Large lot with views from backyard. Great location across from the park. Home has great potential. Great opportunity!

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Proprietary IHB commentary and analysis

Resale Home Price …… $764,900

House Purchase Price … $400,000

House Purchase Date …. 12/30/1999

Net Gain (Loss) ………. $319,006

Percent Change ………. 79.8%

Annual Appreciation … 5.4%

Cost of Home Ownership

————————————————-

$764,900 ………. Asking Price

$152,980 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$611,920 ………. 30-Year Mortgage

$150,523 ………. Income Requirement

$2,985 ………. Monthly Mortgage Payment

$663 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$159 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$81 ………. Homeowners Association Fees

============================================

$3,889 ………. Monthly Cash Outlays

-$699 ………. Tax Savings (% of Interest and Property Tax)

-$854 ………. Equity Hidden in Payment (Amortization)

$228 ………. Lost Income to Down Payment (net of taxes)

$116 ………. Maintenance and Replacement Reserves

============================================

$2,680 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$7,649 ………. Furnishing and Move In @1%

$7,649 ………. Closing Costs @1%

$6,119 ………… Interest Points @1% of Loan

$152,980 ………. Down Payment

============================================

$174,397 ………. Total Cash Costs

$41,000 ………… Emergency Cash Reserves

============================================

$215,397 ………. Total Savings Needed

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9 thoughts on “Desperate BofA now paying short sellers $20,000 cash for keys

  1. Swiller

    There *WILL* be prinipal reduction, but rather than homeowners getting the benefit, it will go through the foreclosure process, and then the banksters will use the crony capitalist system (aka facism) to deny the regular homeowner a chance to buy it for it’s REAL worth, and it will then be flipped for more corporations to make money off the debt of the american people.

    IF, and that is a mighty big if, we lived in a free country ruled by the free market, then for sure I would advocate the foreclosures as it would drive down the price of homes and allow people to live affordably. But WE know this will never happen so I back principal reductions for HOMEOWNERS 150%.

    1. Leviathan

      Yes, you may be right. But let me comment from my neck of the woods (upper middle class suburban Chicago).

      Foreclosures and short sales on good lots are being bought by developers, fixed up and put back on the market for what (in a healthy market) would be bargain prices. A few sell, but many sit for months/years. A few unreconstructed dumps are being bought and torn down by buyers taking advantage of availability and good prices in construction. Many unrealistic sellers sit and wait, and sit and wait. I see no signs of recovery, though decent entry level homes do sell quickly.

      Anything that would require a six-figure down payment to go with the top of a conforming loan (that’s anything above 500k round here) sits. There’s your missing move-up buyer. Around 1M sales pick up a tiny bit (guess gramma died and someone got their inheritance).

      It is not a market that will absorb much shadow inventory. Big investors coming in from out of town would not fare any better than local builders. They would have to put money into these places, and there’s no reason to believe they would make a killing. They will have carry costs to consider, and will want to offload quickly, which will keep prices reasonable. Frankly, when I contemplate buying a “fixer-upper” and having the work done myself, I don’t see how I would do any better financially.

      So that’s one thing to consider. Maybe “investors” aren’t altogether the enemy. I dunno.

      Secondly, when I look at the taxes on places that are going to short sale or foreclosure I am dumbstruck at how high they are. If I buy one of those places, taxes will go down to reflect the new price. But if I get a mod it won’t (not to the same extent anyway). Who is better off if lots of people get principal reductions? Local authorities, that’s who.

      So, you can fight your loan owner (over refi and principal), fight your 2nd lender, and fight your tax assessor to shave a bit off your monthly nut, OR you can let them fight over the carcass and move into a more affordable set-up.

      Sorry to be so long-winded, but I think this is more complicated than it seems.

      1. Perspective

        “…Secondly, when I look at the taxes on places that are going to short sale or foreclosure I am dumbstruck at how high they are…”

        That’s the beauty of Prop 13 in California. There is certainty to your property tax costs the year you buy and every following year. And when prices go down, the Assessed Value must decline to the fair market value of the property thereby lowering your property tax tab.

        It also results in certainty for California government. Property tax revenue increases at a study rate and does not suffer huge downward swings.

      2. IrvineRenter

        Leviathan,

        Thanks for you astute observation. You have a very good understanding of your market. We are seeing many of the same dynamics at work in this market. High end asking prices continue to fall and transaction volumes are very low which are both signs of a lack of a move-up market.

        I hadn’t considered how principal reductions would benefit local tax revenues. It is certainly better for them if prices don’t get reset through a foreclosure.

  2. kishore (renter)

    There was a full page ad in Sunday’s OC Register real estate section about a company being able to obtain 20k-30k$ for short sellers. It was pretty shocking to say the least. Can this be happening in California too?

    1. IrvineRenter

      I haven’t seen it happening here in California yet, but it could. The main thing holding up short sales is money to pay off the second mortgage. If money becomes available to pay part of the second, many more short sales will happen.

      1. kishore (renter)

        I looked at the ad again. Its MacKenzie Advantage Team in Orange County. Their website according to the ad is http://www.macteam.com/

        It’s a full page color ad in this Sunday’s OC Register Real Estate section.

  3. Alicia

    Presumably the 20k would be reported to the IRS and then taxed as income.

    I’m sure it’ll be in the small print 🙂

    So a tax bill and a deficiency judgement (depending), and the borrower thought they were getting a deal. Same as it ever was.

  4. Blair

    I think the Antioch owners must have had a gambling problem because they did not use that $319,000 on interior renovations. 1983 anyone?

Comments are closed.