What is a Purchase Money Loan?

Arizona, as you know from reading this blog, is an Anti-Deficiency State. That means, in certain situations, when a bank loans money for the purchase of the house, the bank's only collateral (or recourse) is the house itself. In other words, if I borrow $100,000 from the bank to buy a house, and lose it to a foreclosure for only $50,000 - the bank cannot pursue me for the $50,000 I never paid back.

As you also know from reading this blog, the key to having this protection is the loan must be what we call a "purchase money loan" - the loan used to "purchase" the house. One of the most prevalent questions we hear is, well "what if I refinanced my first loan and took out extra money to improve the house, does that count?" Unfortunately, we do not know that answer for sure. The law on the books, as of today, does not give us a definitive answer as to whether a "cash-out refinance," in which the refinanced portion is put back into the house, would still be considered purchase money. That is just another challenge of dealing with these issues - we cannot definitively answer all the burning questions.

But, one thing we/you can do, is complete a short sale of these "cash-out refinanced" loans and ask the lender to waive any deficiency from the refinance. If the lender agrees to do so, then no worries!

Fitting Quote

This evening I stumbled upon a quote that I find most fitting for short sales. Seems like a good answer to the often asked question of "why do short sales work":

"When you owe the bank $1,000 and you're broke, you have a problem. When you owe the bank $1,000,000 and you're broke, the BANK has a problem." (Unknown) 

FTC decides not to enforce parts of MARS

Today the FTC has ruled that it will not enforce certain provisions of the MARS rules, specifically ones that apply to licensed real estate agents. There has been much gripe about MARS in the real estate community, because instead of help and protection, the rules created a lot of confusion and unnecessary barriers for the very people who are needed by the distressed sellers and by the banks - the real estate agents who can put together a short sale transaction. 


"As a result of the stay on enforcement, these real estate professionals will not have to make several disclosures required by the rule that, in the context of assisting with short sales, could be misleading or confuse consumers," the FTC said in a statement.


Short sales are hard enough as is - we need less barriers to helping distressed borrowers, not more!


HousingWire Article
FTC Press release

Bank of America Improving Short Sales

Just this past week as I was teaching in San Jose, I had an agent come up to ask a question. He started out by saying "Fortunately, this isn't a BofA short sale ...." I hear this A LOT, and it has everything to do with the fact that BofA used to be THE WORST lender to do short sales with. But a year and a half ago, they really started making an effort to change that. Under the guidance of Matt Vernon (and now Kimberly Dawson), BofA has gone from the worst to being among the best. Starting with transition to Equator (which was not initially well received by the real estate community), moving to simplified process, one by one, BofA appears to really try and do better. The fact remains that BofA left a very bad taste in a lot of people's mouth, and they know that. 

Below you will see a press release from today that aims to solve a well known problem of Buyer cancellation forcing a restart of the process and a delay in closing. BofA is now allowing for a backup offer to be submitted, and so long as it matches the previous offer, the process will not be delayed. This is great news for thinly stretched agents and distressed borrowers! 

Keep up the great work, BofA!

Now You Can Substitute a New Buyer for One Who Walked Without Restart

As an example of our commitment to improving the short sale process, Bank of America now allows real estate agents to submit a backup offer on a transaction if the original buyer has walked away from the sale.  This means you will no longer have to initiate a new short sale; instead, you can continue with the original transaction in Equator and still work with your same short sale specialist.  This change will save you time by not having to repeat a number of process steps. When a Backup Offer Is Ready You should send a message to your short sale specialist via Equator when the original buyer is no longer interested in the property.  Your short sale specialist will then respond to you within two business days and ask if you have a backup offer ready to submit.  If you have another buyer prepared to make an offer, the short sale can proceed without having to repeat the short sale initiation steps.  The short sale status in Equator will change to "Marketing," and you will be directed to complete the following tasks within 14 business days:   ·         Complete the "Listing Data" task. ·         Provide the marketing description. ·         Review the marketing plan. ·         Upload the offer.  (To do this in Equator, locate "My Properties," then "Offers" and select "Place New Offer.") If the "Listing Data" task is not completed and the new offer is not uploaded within 14 business days, the file will be closed. When No Backup Offer Is Ready This new process applies only if there's an available backup offer when a buyer walks.  If you do not have a backup offer ready to be submitted, the short sale will be declined.  In that case, you should return to marketing the property and initiate a new short sale in Equator once you receive another offer. A new educational guide, How and When to Submit a Short Sale Backup Offer, is available to explain the backup offer process.  If you have any questions, please contact your short sale specialist via Equator or call Customer Care at 1.866.880.1232. Visit the Real Estate Agent Resource Center at bankofamerica.com/realestateagent for additional educational guides, news and resources to help you complete short sales at Bank of America.

Which Banks Are Pursuing the Most Short Sales?

Interesting article in Realtor Magazine (citing Inman, citing the Treasury) about which banks do more short sales. According to their findings, Chase and Wells Fargo. Couple of points on this:

1. When we say Chase and Wells Fargo, we also include their acquisitions of troubled banks like WaMu and Wachovia. WaMu committed much fraud and encouraged risky lending - is there any wonder their loans are turning out to be short sales? A HUGE chunk of Wachovia loans was written off when it was acquired (which coincidentally makes them some of the easiest short sales to work). So, of course these lenders are doing a lot of short sales. But what about BofA's acquisition of Countrywide? See #2.
2. Once again, we have to remember that real estate is a geographical phenomenon, and generalizing can lead to false conclusions. Countrywide was very active in Arizona, so our personal experience is that most of the short sales we are doing are BofA short sales. To put it simply - to say that all banks work all markets equally is a fallacy. For example, we rarely see US Bank short sales, but they are quite prevalent in Pacific Northwest, due to the fact that USB has a larger presence in that market.