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Slow going on BofA short sales

By Jay MacDonald · Bankrate.com
Monday, January 30, 2012
Posted: 10 am ET

Bank of America's cash-for-short-sales pilot program to help Florida homeowners stave off foreclosure has been something of a good news/bad news scenario since its debut last October.

Under the program, Bank of America offered $5,000 to $20,000 to homeowners who agree to sell their distressed property in a short sale rather than let it slip into foreclosure. Florida, where I live, was chosen for the pilot because we have plenty of foreclosures. The deadline to apply was Dec. 12. If the program shows promise, it may be rolled out in other states.

Bank of America services 1.1 million Florida mortgages, 253,000 of which were delinquent as of the end of October. For the pilot, the bank targeted 20,000 homeowners who could not afford their mortgages. Qualified homeowners could receive 5 percent of their unpaid mortgage balance up to a $20,000 maximum. To sweeten the deal, the bank said it would consider waiving the deficiency on the mortgage.

But homeowner response has been tepid at best: Only about 3,000 have applied for the cash and of those, only 60 have actually received it.

Part of the disconnect was BofA's doing because it wouldn’t tell homeowners exactly how much money they would receive until the sale was nearly complete. The ultimate payout also was reportedly contingent on income, employment and loan status.

The other drag on the program has to do with our fractured housing market. With foreclosures taking two years in Florida, many homeowners simply preferred to stay in their homes rent-free and build up some savings rather than have to find other housing.

Despite the kinks, Apollo Beach real estate agent Bonnie Fagoh, who represents a seller who stands to collect $15,000 when his or her short sale closes this week, gave the program a thumbs up.

"It was a very smooth process," Fagoh told the Tampa Bay Times. "Everything is being worked out."

St. Petersburg agent Steve Capen is less optimistic. He gained 15 listings from the program, none of which have closed, but fears that BofA's cash incentive will evaporate at closing.

"They rolled out this program, but nobody knows the guidelines," he told the Times.

Short sale specialist Beth Cromwell, whose firm is handling several Bank of America deals, says patience will pay off. "I believe the program is working. We just need to give it more time," she says.

And South Tampa broker Andrew Duncan says it's encouraging that agents are receiving quicker response from the bank on their home offers.

"It's not all sunshine and rainbows, but it's been pretty positive," he says.

Nobody wants a foreclosure on their block. In this regard, Bank of America's program is a welcome move in the right direction.

Because when you're digging out of a hole, you don't fault the shovel.

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3 Comments
Banking Dude
February 01, 2012 at 7:00 pm

Right on!

Bob Dodson
February 01, 2012 at 6:35 pm

I wonder if BofA is informing these unfortunate folks that they will be facing a huge tax bill. The bait money of course is considered ordinary income and therefore taxable immediately. But that ain't all! The waiver, write-off, or whatever you choose to call the balance owed after the short sale is also taxable, as ordinary income, immediately. For instance, consider this extreme circumstance which nevertheless surely exists:
Mr. & Mrs. Smith have a $600,000 mortgage with BofA on their home which today is worth only $300,000. They take advantage of the short sale deal. The lender writes down the debt after the sale resulting in a $300,000 write off. The lender issues a 1099 for that amount and Mr. & Mrs. Smith are now obligated to the IRS for $75,000 (assuming a 25% tax bracket) in tax immediately. Additionally, even though Mr. Smith is unemployed and Mrs. Smith's job grosses $45,000 per year, they are now above Mr. Obama's threshold of $250,000 annual income and therefore subject to a tax increase or some other special assessment on the "wealthy".