Cooperative Short Sale. Really?

January 17, 2011 19:16

Cooperative Short Sales. Really?

When I first heard the term cooperative short sale, it reminded me of terms like friendly foreclosure, or even worse friendly fire, but as it turns out banks are trying to find a macro-solution to short sales. 

A cooperative short starts with a phone call from the homeowner to the bank.  The homeowner explains to banker that he or she has suffered a hardship, and will no longer be able to make the mortgage payments.  The Banker and the homeowner will probably discuss a loan modification, and in fact, this may be a pre-requisite to entering into a cooperative short sale.  Once the bank has determined that a loan modification is not a viable option, and after documents have been presented to the bank that show the home owner's hardship, the bank is not left with any good options, so they are taking the lesser of two evils... the cooperative short sale.

The cooperative short sale is less bad for the bank than a foreclosure because it is less expensive than a foreclosure; it is quicker than a foreclosure and it doesn't tarnish the bank's reputation as much as a foreclosure. Furthermore banks don't want to have abused bank owned (REO) properties on their balance sheet.  The bottom line is: it makes financial, legal and good PR sense for banks to close out non-performing loans this way. 

Homeowners can benefit from this type of short sale because the bank waives its right to go after the seller for the deficiency, and the seller may walk with $2,500 to $3,000 in cash.  Furthemore, the homeowner doesn't have the stigma of a foreclosure on his or her record.  

The next step in the process is for the Bank to order an appraisal.  The property is then listed with a Realtor at the appraised value of the house, and the Bank agrees to sell the property at the appraised price (or lower?).  The short sale is pre-approved, so the acceptance of offers only takes a day or two, not the 6 months that we are used to waiting.  I think I need to repeat that: It only takes one or two days for the bank to accept offers!  As if that weren't enough, the Bank understands that the appraisal may have come in high, and if the property doesn't sell in 21 days, the price gets lowered every 21 days until an offer comes in, or the property is foreclosed upon.

Bank of America is pioneering the concept of cooperative foreclosures, but other banks may be exploring these options as well.  I am working on a cooperative short sale at this moment, and I will make some posts along the way to update readers about the process.