How to Dispute a Short Sale Valuation That's Too High

Occasionally a lender's valuation of a short sale property is significantly more than what the market will pay.  As a broker you may have recourse,  however, every lender has a different process for reevaluating value. The first step is to contact the lender and get a detailed overview of their value dispute resolution process.  You want to make sure that you are providing the lender with the precise information they need to consider a change in value.

The BPO broker or appraiser who sets the original value often does not have a complete picture of the property. When we request that a lender reconsider a home's value, we gather as much documentation as possible.  That includes comps, a summary of repairs needed, and contractor bids for those repairs. We sometimes pay to have our own appraisal done as well.

 

If the lender is unwilling to budge on their value, we find out when the appraisal or BPO figure expires and then work with the lender to order a new one. 

 

Bank of America is one lender who is making an extra effort to work with brokers. BofA has streamlined their process for settling valuation disputes during a short sale, making it faster and easier for brokers to get the bank to consider an alternate value. Get step-by-step  instruction on How to Dispute a Bank ofAmerica Short Sale Valuation.  

3 reasons why NOW is the best time to do a short sale

If you have a client who is considering a short sale,  there are a number of compelling reasons to make the move now.

1)  Tax advantages for doing a short sale are set to expire.

When a lender forgives a homeowner's debt, the tax laws had previously considered the forgiven debt as taxable income. This law applies equally to short sales and foreclosures. 

 

The Mortgage Forgiveness Debt Relief Act enacted in 2007 allows debt forgiveness of up to $2 million to NOT be considered taxable income if:

• The house has been used as the principal place of residence for at least two of the  previous five years.
• The debt has been used to buy, build, or make substantial improvements to the home.

That law is set to expire at the end of 2012. While Congress has begun discussions on extending the act, the outcome is uncertain. If a seller wants to make sure their deficiency is not counted as taxable income, their short sale must close by December 31, 2012. That means they need to get their house on the market now.        

2)  Lenders are offering significant incentives for sellers to do a short sale instead of foreclosure.

Banks have recognized how expensive the foreclosure process is for them. They also do not want to add to their already bulging inventory of bank-owned homes, which are expensive to insure and maintain. As a result Chase and Bank of America are paying significant cash incentives to encourage sellers to do a short sale and avoid foreclosure.

 

Recent examples include a client who sold a $200,000 home and received a cash incentive of $20,000 at closing, and the owner of a $350,000 home who received $30,000.  If you have a client who is – or should be – considering a short sale, this may be the incentive they need to move forward.  

3)  It's a seller's market.

 

Inventory levels in the Puget Sound area are the lowest they have been since 2006.  Low interest rates and affordable home prices have drawn additional buyers into the market. As a result, more buyers are competing for a shrinking pool of properties. That growing competition for homes has resulted in multiple offers and escalation clauses on many of our short sale listings. It's an ideal time to sell a home.   

Tips For Pricing A Short Sale

We often get questions about the best way to price a short sale. In reality, many of the same principles that go into pricing a non-distressed property  apply equally to setting the list price of a short sale. Price depends on the location of the property, its condition, the availability of strong comparable properties, and the amount of competitive inventory.

When pricing a short sale,  the key is to strike a balance between what a buyer will pay and what a bank will approve. It's not unusual to see agents apply an across the board discount to a short sale property (for example, a 10% price reduction). This is a mistake. In so-called "hot" neighborhoods, short sales often can be priced at market value.  When the bank's appraiser does a value determination of a short sale property, they generally will try to seek out comparable short sales in the neighborhood. If there are none, the appraiser will use non-distressed properties as comps. If an agent lops $30,000 off the value of a home just because it’s a short sale, it's unlikely that such low offers would be approved by the bank.  

An added note: If you want to dispute a short sale valuation, and your client's loan is with Bank of America, BofA has launched a streamlined process for considering an alternate value.      

BofA launches faster way to dispute short sale valuations

Listing agents that disagree with bank valuations of short sale properties now have a new option. Bank of America has streamlined their process for settling valuation disputes during a short sale, making it faster and easier for agents to get the bank to consider an alternate value.  

The value of a property is established by independent third-party vendors shortly after a short sale is initiated. If a listing agent wants to contest that value, this is the new process:

How to dispute a Bank of America short sale valuation

1. Tell your BofA short sale specialist that you would like a reconsideration of the value.

2. The BofA short sale specialist sends you an investor-specific, easy-to-complete form that specifies all requirements for a successful value dispute.

3. You fill out the form and attach specified evidence.

4. You can expect a value dispute review within 10-12 business days once all required information has been received.

Evidence you need to provide to Bank of America to dispute a value

When contesting a home value, Bank of America requires compelling evidence to support your claim. Here are the guidelines outlined by BofA: 

• Do not reference property pricing amounts in the narrative on the form. This violates appraiser independence policy and is against industry standards. Any reference to pricing will disqualify the dispute. 
• Provide comparables that are recent, proximate (nearby) and similar to the property in question.
• “Recent” means sold within 90 days of the actual value document date.
• “Proximate” varies by location. In a rural area, for example, a home five miles away could be considered proximate.
• You will be able to provide additional notes to highlight characteristics of the comps.

When the dispute centers on property condition or hazards:

• Provide an itemized estimate from a licensed contractor on the contractor’s letterhead.
• Provide photos to illustrate the repair, condition issue or hazard you want to highlight.

The above is a summary of the new changes. Your Bank of America short sale specialist can provide additional guidance about the process.

Chase and Bank of America Paying Large Cash Incentives for Homeowners to do Short Sales

If you know someone who is underwater on their mortgage and has their loan with Chase or Bank of America, there's some good news. Both banks have started paying significant cash incentives to encourage sellers to do a short sale and avoid foreclosure. We've had clients in the past month get checks for up to $30,000.  Find out more information about Chase and BofA relocation assistance programs.

The Key To Navigating the Short Sale Process with Bank of America

Understandably, Bank of America has been the target of much criticism for how difficult they have been to work with in trying to successfully negotiate a short sale. Just this week nearly 100 angry homeowners took to the streets in Las Vegas, protesting what they call unfair treatment by Bank of America.

But since December 2009, Washington Property Solutions has utilized BOA's Equator Financial web-based system and it has been a great experience. Our ability to communicate with BOA directly through the Equator system is an extreme improvement on their execution and response time. Other lenders have been using Equator also and WPS has become proficient with each of their unique processes.

The system can be difficult to maneuver through, but we have been successful in learning the intricacies of the system. Previously Bank of America's short sale process could take up to 2 weeks for a file to be activated properly. Through the use of Equator we are now able to initiate the short sale process with Bank of America in less than a minute. We can upload the required documents directly into their system and get instant confirmation that they have been successfully received. The use of Equator has also eliminated the need for repeated requests for updated financial documentation from the sellers.

The new system does require that the sellers create an account and sellers do have required tasks assigned to them, but WPS is happy to assist all our clients to successfully navigate the system. At the seller's request, we are willing to take care of the tasks required for them if they are having problems or other time constraints.

Nice to see some positive developments with the Bank of America short sale process.