Bank of America 2nd Lien/HELOC Short-Sale Negotiation

I recently negotiated a short-sale on a HELOC (Home Equity Line of Credit) with Bank of America and I wanted to share with you my experiences with old policy versus their new policy.

There was a lot of buzz about Bank of America's new policy that they would now allow for the short-sale lien release to be approved at 5% of the net proceeds rather than 10% of the net proceeds. The net proceeds means the amount of money that is left over once closing costs, commissions, and concessions are subtracted from the purchase price.

Well the first approval that I got in March 2009 was for 10% of the TOTAL BALANCE owed by the seller, which was $9,540.00. That varied from what they had told me about their old policy. Perhaps someone got it wrong when they approved it the first time. This, at first, seemed like a lot to pay for a 2nd lien release. Typically, most 1st lien holders only offer $1,000 to $3,000 to all junior lien holders. The remaining amounts must come from the real estate commissions, seller, buyer, or a combination of those three.

The surprise came when I was looking to get an extension on the short-sale approval. The newly created short-sale department at Bank of America (Their phone number is 1-866-413-3757) gave me a two week extension and stated that if I did not close by that time that I would have to resubmit the file and it would fall under the new guidelines. That now increased my short-sale lien release amount to $18,880.00!! Now that was a lot of money to bring to the table. I tried to get the 1st to increase their offer amount, but they wouldn't. I also tried to get the second to lower the amount of money they wanted.

They wouldn't...so what was I supposed to do??

Well the reason I am writing this is to tell you what I did. After searching the web and asking others what to do I finally came to this conclusion, and I asked myself, what are all of the variables in this transactions?

The most exciting result was to find that the buyer had a 10% downpayment and was not asking for closing costs. As a result, I asked the buyer's agent if the buyer would be willing to put 3% of the purchase price towards the 2nd lien release. With the 1st offering $3,000 and the $11,880 from the buyer we were only $4,000 short. We ended up getting the buyer to bring in the extra $4,000 to spare our commissions, but we were ready to give up commission if necessary.

The important lesson learned is that some times you have to think outside of the box when you are dealing with 2nd lenders. You can go back and forth for months trying to work them down, but why not look around and see what you have before doing all of that work and wasting time.

Remember for future reference that before taking on any short-sale with a Bank of America 2nd lien keep in mind that they want 5% of the net proceeds and you will need to take that into consideration when you are negotiating with potential buyers.

I hope this has been help. Please come around again to see more tips on real estate short sales.