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It's not mortgage principal reduction, but it's a start.Bank of America is quietly rolling out an incentive program in parts of Florida in which they'll pay distressed homeowners up to $20,000 if they successfully short-sell their home, according to The Palm Beach Post.
A short sale is an arrangement in which the lender agrees to accept less than what's owed on the mortgage to avoid a lengthy (and expensive) foreclosure process. Foreclosures in Florida take an average of 23 months to be processed -- nearly twice the national average, according to analytics firm RealtyTrac.
The pilot program, identified by BoA spokesman Rick Simon as the "short sale/relo incentive program," is only being tested in Florida at the moment, due to the state's high volume of foreclosures. If the program is successful, the program may be launched elsewhere, he said in an email to AOL Real Estate.
Sometimes referred to as "cash for keys," the money may be used to provide distressed homeowners "with the tools and resources necessary to transition out of their home with dignity," the press statement says. In other words, there will be less chance that the homeowner will be tempted to vandalize the property on the way out.
Trouble Thrives in Vacant Homes
In the humid climes of Florida, short sales are far more desirable to lenders than letting the house sit vacant in a foreclosure. Mold can ravage even the best built homes, and empty houses are prone to squatters and vandals. The $20,000 payout could be a drop in the bucket in comparison to the cost of maintaining a rapidly deteriorating home.
But there may be a major downside to the program for severely underwater homeowners. In recourse-loan states like Florida, the lender can seek what's known as a deficiency judgment -- the unpaid balance left on the mortgage -- even after a short sale is completed.
In such cases, much of the money could end up back into the bank's pocket. BoA's Simon said that the bank's guidelines "allow for the deficiency judgment to be waived," but the bank reserves the right "to pursue collection" after the sale. That may not be a strong enough commitment, according to Broward County-based consumer defense attorney Margery Golant.
"The fact that they 'may consider' waiving the deficiency judgment means nothing to me," Golant told AOL Real Estate in a phone interview. "It just fosters false hope."
For Golant, who regularly sees homeowners with close to six figures of outstanding debt, even the full $20,000 would do little to get an owner out of the hole if they're still on the hook for the difference, she said.
"If they really were waiving the deficiency judgment, then I would think it could mean a meaningful approach," Golant says. "But to say we'll give you $20,000, yet reserve the right to sue for the difference is not only not meaningful but deceptive."
Could It Work?
There is already a national precedent for what BoA is attempting - the Home Affordable Foreclosures Alternative (HAFA) program, which offers a $3,000 short sale "relocation" incentive. But so far the results have been less than encouraging. Since April 2010, HAFA has only completed 15,531 short sales nationwide, The Palm Beach Post reports, and the program is scheduled to sunset at the end of 2012.
Still, if BoA can put up some impressive numbers in its trial run, there may yet be hope of more aggressive financing options for America's thousands of underwater homeowners - like the often-trumpeted, mostly dismissed notion of mortgage principal reduction.
For Florida homeowners interested in participating in the program, here are some key points:
- The program offers $5,000 to $20,000 to qualifying homeowners who complete a bank-approved short sale. The amount is based on the unpaid balance on the loan as of Aug. 2011.
- Short sale must be initiated between Sept. 26 and Nov. 30, 2011, and closed by Aug. 31, 2012.
CORRECTION: A previous version of this article stated that foreclosures in Florida take an average 23 months to sell. It takes an average 23 months to complete the foreclosure process in Florida, not to sell the property.
See also:
HAMP Helping Fewer and Fewer Homeowners
Viewpoint: The Mortgage Fix That Could Save the Economy
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