Are Deed Restrictions Going To Be Customary in Every Bank Owned Property and Short Sale?

     As most know, Bank of America has placed a 60 day deed restriction on the sale of any inventory in their REO department as well as on any short sales they approve as the mortgagor.  This restriction prohibits the deed from being transferred into another name or entity for a period of 60 days.  This constraint seems to be taking hold in the defaulted asset arena as other banks and GSE's seem to be placing the same restrictions on their foreclosures and short sales.

     Below is an example of the addendum that Wells Fargo is now requiring with the approval of their short sales:

      This basically states that you are not allowed to transfer title even if it was being sold for a loss.  It also states that after the 30 day deed restriction, you may not sell this property for more than 120% of what it was purchased at for a period of 90 days.  Unfortunately, this is going to take place on nearly every foreclosure and short sale. Fannie Mae is the one behind this change to short sales.

     In a recent press release on January 18th, Fannie Mae announced that all mortgage backed securities owned by this GSE will be sold with a 30 day deed restriction if they are sold as a short sale.  Since Fannie Mae purchases nearly 70% of all mortgages, this will have a dramatic effect on how investors purchase these transactions.  Investors who are in the transactional business will be forced to hold properties longer instead of quickly reselling them.  

     If Fannie Mae continues to follow the path of Bank of America, this will lead to a 60 day deed restriction. This deed restriction will not only be limited to short sales, but will also be placed on REOs as well.  For many investors, this will end the way they do business.  Many will change careers, leaving the few who can adapt privy to more inventory with less competition.

     

Bank of America Looking to Decrease Amount of Short Sale Transactions as of 1/15/2013

     Bank of America released a press packet last week announcing some changes to their short sale and foreclosure process.  Below is the actual literature posted to the BofA website. Or, story can be read by clicking on this link: https://agentresources.bankofamerica.com/ss_news_13JAN15 .

     For homeowners considering a short sale with Bank of America, this is extremely important to take note of.  The summary of this announcement is that Bank of America is going to continue through the foreclosure process if a homeowner files for a short sale until all parties have a contractual agreement to perform a short sale.  While that may not be difficult for a buyer and a seller to agree upon, the approval of the assigned "short sale specialist" representing BofA can and will take 3-9 months to sign an approval.
     In some states (such as Florida for example) this may not be too detrimental.  The foreclosure process in judicial states can take years to complete.  As for states such as Texas, this is a death penalty.  Because Texas is a non-judicial state, foreclosures can be processed and completed in 90 days or less.  It is unheard of for BofA to give approval in a short sale transaction in that amount of time.
    There is an example of a recent short sale that an investor was in contract to purchase.  The original contracted date between the seller and buyer was some time back in July.  As time went on, the agents and parties involved were getting updates from the asset manager at BofA's short sale department with excuse after excuse.  The file was constantly being transferred from specialist to specialist with titles like "tier one agent", "tier two agent", "third stage specialist", and so forth.  As January 15th approached, the buyer was requested to submit corporate docs for the LLC purchasing the property.  The buyer submitted the request and the "third tier specialist" rejected the docs, stating that "the articles were written incorrectly."  This buyer happens to be an avid investor, regularly purchasing around 100 properties per month nationwide.  This was the first that the buyer ever heard of their articles being formed incorrectly.
     On the day of the 15th (the same day this press release was announced), BofA rejected the sale and the property is currently scheduled to be sold on the county court steps next month.  If there was an agenda then it's pretty obvious.  The agenda is simple.  The cost involved in a short sale is much more expensive than that of a foreclosure.
    Now that this rule is in place homeowners are still allowed to file for a short sale.  However, it is a race to gain bank approval before the foreclosure wraps up.  The odds are strongly in the favor of a foreclosure.
    This really does not change much for investors other than being able to perform a transaction much quicker.  The property will still be sold.  However, it will be sold as a foreclosure, not a short sale.  With Bank of America, the same issue is presented.  That issue is a 60 day deed restriction, but that is an entire other topic.