A Close Encounter of the Short Sale Kind

No doubt the short sale transaction still maintains its dominant footing in residential real estate.  As an active Realtor and short sale specialist, I still encounter the full gamut of short sale scenarios – small condos to luxury homes, single family to multi-units.  Property values range from sub $100,000 to well over $1,000,000, and the unpaid loan balances vary just the same.  Many short sale lenders have introduced a variety of short sale programs to target this diverse range of underwater situations still prevalent in their portfolios.  Lenders even continue to shell out attractive incentive packages for homeowners proactively seeking short sale assistance, seemingly to award these homeowners monetarily for taking the “high road” and helping each other cure these non-performing portfolio assets.

Bank of America, for example, continues to solicit and review their clients for their [relatively new] Cooperative Short Sale program.  A Bank of America Cooperative Short Sale can both streamline the review process and offer the homeowner financial assistance ranging from $2,500 to up to $30,000.  Many homeowners approach me with a kneejerk reaction to ask how they can quality for the maximum $30,000 award.  Although Bank of America weighs many variables to determine the offered incentives package, I’ve witnessed firsthand the homeowner’s default status as playing a major, determining factor.

All else being equal, Bank of America has offered my clients higher relocation awards when the homeowner approaches their lender earlier in default.  Homeowners who haven’t even missed a payment yet have qualified for high relocation awards.  I’ll give you two very recent examples which illustrate this point:

1. Homeowner A had an unpaid principle balance of $976,000, with an estimated home market value of $755,000.  Homeowner A approached Bank of America for their Cooperative Short Sale program 39 months into default, and was extended a relocation award of $8,700

2. Homeowner B had an unpaid principle balance of $301,000 with an estimated home market value of $219,000.   Homeowner A approached Bank of America for their Cooperative Short Sale program with 0 months of default, and was extended a relocation award incentive of nearly $13,100.

From the above, I can deduce that a borrower’s default status plays a big role in the relocation award calculation.  Homeowners who approach their lenders earlier in default seem to optimize their chances of getting the higher incentive award.  Curing a defaulted loan earlier in default saves the lender big bucks; it would seem lenders are incentivizing borrowers to take early action as opposed to waiting until the last possible minute before seeking resolution.