Bank of America Strikes Back

 

The Galactic Empire known as Bank of America has recently added strict language to their short sales that are an attempt to stop investors from purchasing short sales and then selling them to a predetermined buyer. I recently received both a Short Sale Contract Addendum and an Agent Certification Disclosure that specifically aim to stop this process.

What is Flopping?

Most people are familiar with the term “flipping” a property, where an investor would purchase the property at a discount and then try to quickly sell the property at a profit. (with or without making any improvements.) The recent increase in short sales has has produced an evolution in flipping where investors identify an end buyer even before they have purchased the property through a short sale. A process called “flopping”.

How Does it Work?


Because of the large wait times to process short sale transactions, investors have been marketing properties they haven’t even bought yet. Short sales can take up to 6 months with some lenders. This gives the investor time to find someone who may be willing to pay more for the subject property then the bank is willing to sell the property for. Once they bank has approved the short sale to the investor, he simply resales it to the end buyer at a profit, some times on the same day.

The Bank Doesn’t Own the Property.

This very important fact is why the bank doesn’t always see the highest priced offer. If the seller has a signed contract with the investor, then other offers often get held in backup position. Presenting a new offer on a short sale can cause delays and the holder of the first accepted offer may have some recourse if the seller accepts a different offer. Investor use this fact to their advantage and have been profiting from it. Until now.

The Beginning of the End?

Bank of America’s new language makes the real estate agents involved declare that the property had been marketed “in fact and in spirit” to maximize the selling price of the property. It also states that there are to be no “agreements, understandings or contracts…relating to the sale or subsequent sale..” of the property. Furthermore, Bank of America has had a clause on their approval letters that have forbidden the buyer from transferring title for 30 days after closing. The HAFA short sale process has extended that clause to 90 days.

It’s Not All Bad…

Investors often get portrayed as taking advantage of distressed home owners or as being greedy. That may be true for some. But there are a few things to consider here. Many investors have cash on hand and can close quickly. Time has got to be worth something. Many investors take distressed homes and make improvements to them that will actually raise the value of the homes around them. They also employ contractors and tradesmen in the process, providing much needed work in a distressed economy. Instead of fighting investors, why not wholesale to them?

If you would like a copy of the Bank of America Short Sale Contract Addendum and the Listing Agent Certification Form then Contact Me and I will email it to you.

Comments

  1. Billy Barnes says:

    I recently came across a house that had a for sale sign in the yard that I wanted to purchase. The property was listed for 1 day and had a contract. The real estate agent is set to get commission from both sides. I asked if he would submit a full price offer with no contingencies. His reply was no, not until the bank has decided on first offer. I felt that this was unfair and expressed to the agent that I could not understand why he would not take my offer. After reading information on your sight I understand why he may not want to submit another offer even though it was higher. However, I’m trying to see if this is legal.. I can’t see how the institution who holds the mortgage doesn’t have the right to see all offers. Please let me know if you can provide any insight to this. I have considered contacting the bank directly, to let them know there was another offer. What is your take on this?

    • Billy- There are all kinds of things that come into play in your scenario. I can not give you legal advice with regard to this scenario as I am not an attorney, but I will try and explain some things.

      The main thing to understand about this is that the bank does not own the home. The seller alone decides what offers are accepted on the house. The bank can only approve the loss. It does seem unfair but there really is no way to get around the sellers right to decide what happens to the property while he still owns it. How do you know that the current offer isn’t full price with no contingencies just like yours? How do you know the buyer doesn’t have a different agent representing them?

      With that being said, the listing agent is required to present all offers to the seller. (not the bank, the seller). In Oregon, we use a short sale addendum that allows the seller to accept multiple offers. If the current offer on the property doesn’t allow for the seller to accept multiple offers than he may not be able to accept your offer if he wanted to without violating the contract he is already in. You won’t know what the terms of his existing contract are.

      There is one little caveat to this scenario. Many lenders are now asking agents to sign an affidavit that states that the property was marketed to attain an offer at fair market value. It would be tough for the listing agent to sign that affidavit if you were to write up an offer that was for a much higher price. You will never know it though as you are not a party to the transaction.

      In the end, the bank will have sent out an independent agent to estimate the value of the property. If the offer they are looking at is in line with that value, they will take the deal. If it is too low, they will ask for a higher offer. If you want the house bad enough, all you can really do is get an agent to present an offer to the listing agent.

      I hope that helps.

  2. Beverly Cox says:

    We are 92 days into a BofA short sale with no second. It is still in review. So much for shorter wsit times. We are VA preapproved. This is totally ridiculous. You sre not receiving any payments and we are ready to fund… I don’t see any fiscal logic to this scenario.

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