[NOTE: There is an important update about this information posted on this blog on February 14 at http://bit.ly/YceBUc ]
Not only does an updated Bank of America short sale listing rule require the short sale listing agent to lie, it also dictates that they breach their MLS rules and put their sellers’ property and persons at risk – as well as their license.
On February 11, Bank of America (who refers to itself these days as “BANA”) issued an update to its short sale listing rules. The entire update is posted at the end of this article.
Two aspects are particularly disturbing. The first requires a short sale which is under a binding legal contract to retain a MLS status of “active.” The second is that it prohibits comments that may appear to limit the perpetual availability of the property for viewing.
Making “Active” Misrepresentations on the MLS
The first disturbing rule states: “Ensure the listing status is current and active on the MLS until a short sale approval letter is issued.” For any general consumer reading this article, MLS stands for “Multiple Listing Service.” It is the directory of houses on the market by local real estate agents that is fully accessible only by members of the association that sponsors the MLS.
Every MLS has an extensive list of rules. They all require agents to provide accurate information about the status of the property. Before short sales were common, the status that an agent should use was unsettled. To my understanding, most MLS boards have settled the issue and have concluded that some form of “contingent” status must be used once a property is under contract and awaiting short sale approval. The primary “contingency” of the contract is the approval of the short sale by the lienholders. Some MLS systems prefer “pending” and might have a “backup” status available for taking backup offers.
A property is properly shown as “active” on the MLS when a seller has not yet accepted an offer or a prior contract has failed. Once an offer has been accepted, it is basic contract law that the seller is obligated to sell according to the terms of the contract and cannot accept other offers because that would create multiple binding contracts to sell one property outright to several buyers. Obviously that is not possible and no buyer (nor seller) would want to be in that situation.
Yet the BANA marketing rule requires the listing agent to retain the “active” status in violation of MLS rules and to make an intentional misrepresenation (a “lie”) to the other agents and the public regarding the status of the property. When a property is “active” it is a representation that the seller is free to accept an offer and enter into a contract. But when there is an existing contract, even one contingent on a short sale, this statement is false.
So what’s the harm? Won’t that generate more showings and offers? Yes, that’s the harm. Other agents and prospective buyers must be able to continually view the property and submit offers only to be frustrated by the fact that the seller is legally prohibited from entering into another contract. (Yes, there is a way to submit a “back up” offer but that is not the same as a binding offer resulting in a contract. Few buyers want to wait out the protracted short sale approval of a prior buyer before entering into contract. Most backup buyers find another property during the wait.)
All this BANA rule is likely to create is a lot more disturbance to a seller who thinks their property is sold, to agents who show a property that is not legally available, and to frustrate buyers who want to make a binding offer on a house that’s not available.
Good way to create more mayhem BANA!
At first I thought it was inconceivable that a bank would require a listing agent to lie to the public. Then I realized: This is Bank of America. Their entire corporate culture appears to be about lying to the public, so now they are dictating to real estate agents to do the same.
Risking Homeowner Safety for the Benefit of the Bank
Another part of the marketing rules update prohibits “unacceptable language” in the MLS remarks. One example is, “Do not disturb homeowner, property not available for viewing.”
Now this is an example, and BANA doesn’t come right out and say it, but the implication is that there should be no limits on showing the property so that other agents can freely disturb the homeowner.
Many listings are “by appointment only” for very good reasons. There might be a minor child home alone after school. There might be a dog loose in the house that could bite visitors. There might be a home security system that could be triggered. Of course, there are many more valid reasons.
So now agents will be hesitant to put important restrictive remarks in the MLS. Not only could this result in rejection of a short sale application but it can result in the revocation of an existing approval.
Since the summer of 2012 BANA has implemented an in-depth file review system AFTER it issues a short sale approval letter for a specific buyer with a specific, binding contract. One of the most common demands placed on my office since then has been to argue the escalation of approvals that have been revoked WITHOUT NOTICE, only to be discovered shortly before closing. The files simply disappear from Equator, the online short sale processing system that BANA uses. Then the seller’s representatives need to navigate through a labyrinth of BANAL bureaucracy to find the right people who can review and reinstate the approval.
The majority of these disappearances recently have been due to BANA feeling the property was not adequately marketed. Usually with few facts and even less reasoning. In each case, my office has had the short sale approval reinstated by providing proof of the proper marketing.
However, BANA’s method is to cancel the approval without notice and simply delete the file from Equator! They shoot first and don’t ask questions unless forced to receive answers. Now they are saying they will get even tougher on their woeful abilities to evaluate proper marketing.
Will BANA Take Responsiblity for Results?
What if an agent now advises the seller they must provide constant access to the seller’s home by other agents and prospective buyers, even after the house is in contract?
Will BANA pay damages if a buyer is bitten by the seller’s dog who could not be restrained without an appointment? Will BANA pay for the losses from a burglary because a security system is permanently disarmed? Will BANA take responsibility for the horrific results if a child is abused as a result of strangers having nearly unbridled access to the house?
Will BANA pay compensation to real estate agents who get disciplined by the Department of Real Estate or lose their license for intentionally making false representations to the public?
The lack of thought that went in to this notice is nothing but astounding. Where is Bank of America’s legal department on this? Who in their loss mitigation department has any understanding of MLS rules, agent fiduciary duties, and safe marketing practices?
Could all the resulting damages require another government bailout?
Read the BANA update below and share your comments on this new self-centered power grab by Bank of America.
HERE’S THE UPDATE: [Note: this has been updated as of February 14, see BANA Retraction ]
In our continued effort to ensure acceptable and fair marketing activity for all short sales, this is a reminder that Bank of America requires all properties to be listed on the Multiple Listing Service (MLS).
The property must have been listed prior to the acceptance of an offer. All offers must be submitted by the buyer subsequent to the listing date, and the property must be marketed on the MLS until a short sale approval letter is issued. Any property not listed on the MLS may experience processing delays, and/or the Short Sale file may be declined.
The following actions can help prevent processing delays and/or file declines.
List the property on the MLS and include all basic property detail, including:
Number of beds/baths, square footage, lot size, year built, location, interior features, etc.
All known property information used to market the property to prospective buyers.
Alternative language such as “unknown” or “unavailable” should be used – instead of leaving fields blank – when you encounter certain property characteristics that may be unknown via public record (e.g., Property taxes, deed information, and other fees).
Ensure the MLS remarks and/or comments do not reflect unacceptable language such as:
- “Do not disturb homeowner, property not available for viewing”
- “Bank has already approved the short sale”
- “Cash offers only”
- “Preapproval through listing agent lender only”
Ensure the listing status is current and active on the MLS until a short sale approval letter is issued
Per investor guidelines, additional documents may be required and will be communicated, as applicable, by the Short Sale Specialist.
This is not really a new rule for BOA, know known as BANA (sounds way too close to banana to be honest). In the past, BOA wanted to see that the property was being actively listed to the full extent of the markets’ availability to bring the highest and best offer. I remember phone calls to BOA for approval status and would get something close to a threat as a BPO Agent would report that the property was in Pending Status on the MLS. I see their point as an Asset Mgr. they want to insure that the home has the opportunity to receive the highest possible marketing price by giving it a full marketing time range (preferably 60 days in the past) to receive higher prices.
What they used to do was to tell you they would not be considering any offers until the property was on the market for 30 or 60 days. Most of the banks want to see an updated bio every 30 days and in an upward market we are sitting on the MLS waiting for much longer as the new bio keeps coming out higher each time (it can be come bio purgatory).
Regarding the Active Status Rule: This is not really a new rule for BOA, know known as BANA (sounds way too close to banana to be honest). In the past, BOA wanted to see that the property was being actively listed to the full extent of the markets’ availability to bring the highest and best offer. I remember phone calls to BOA for approval status and would get something close to a threat as a BPO Agent would report that the property was in Pending Status on the MLS. I see their point as an Asset Mgr. they want to insure that the home has the opportunity to receive the highest possible marketing price by giving it a full marketing time range (preferably 60 days in the past) to receive higher prices.
What they used to do was to tell you they would not be considering any offers until the property was on the market for 30 or 60 days. Most of the banks want to see an updated bio every 30 days and in an upward market we are sitting on the MLS waiting for much longer as the new bio keeps coming out higher each time (it can be come bio purgatory).
The previous comment contains typo’s as my predictable text must be on. It should read BPO everywhere instead of BIO. A BPO (Broker’s Price Opinion) is a shorter version of an appraisal usually performed by a Licensed Real Estate Agent or an Appraiser that is hurting for work.
Leandra, thank you for your comments. Since I’m not an agent I don’t get the BANA agent notices. I don’t have a problem with the concept of “BOA wanted to see that the property was being actively listed to the full extent of the markets’ availability to bring the highest and best offer.” I realize they have understandably been pushing for this for quite a while. It’s their micro-management and instructing violations of MLS rules, etc. that’s the problem, especially when they don’t appear to understand how this all works “in the trenches.”
One of the most common questions I have been receiving from real estate agents is, “what can we do about this.” The implications of these rules needs to be brought vocally before local Realtor(r) boards, pushed up to state and national board. The National Association of Realtors(r) is supposed to have a direct contact with BANA loss mitigation policy and process people. NAR needs to explain how and why these requirements are unrealistic and over-reaching.
Hopefully, maybe someone with proper influence at Bank of America will read this article and realize how they are screwing up. If that person is in the Bank of America legal department then maybe the risks will be recognized as not worth pushing this way.
Hi Ron –
I’m so happy to have discovered your site. I see what BANA is trying to do, but their method is off base and a bit heavy handed. There is so much buyer frustration, that I was actually recently arguing the opposite way to my MLS. I was arguing that listings should be marked pending if no more showings or offers were wanted so that buyers stopped spinning their wheels on “contingent” listings. That is killing our industry right now – IMO. Buyer frustration is so high, and the illusion that there is inventory makes it worse.
And besides, there is no way in the Equator system to truly submit two offers at once – so what is the point? Or have they changed that too? They FINALLY have a limited method of submitting a back up after the original offer cancels without tanking the whole file, but that’s it to my knowledge. What they want to do is prevent listing agents from selling a listing as a pocket listing and never exposing it to the market. I agree that practice needs to be curbed because it is being abused. However, I have also sold a listing (to a different broker) in one hour before as well – I wonder how that would look.
There is a better way to limit the pocket sales without subjecting short sale sellers to unwanted showings to collect offers that BANA won’t even look at. I’ve been holding open houses only on occupied listings because my last occupied listing that I held open for individual showing appointments received about 36 showing requests over 3 days. You might as well tell the seller to move out at that pace. They should just establish a reasonable and fair process and have everyone attest that it was followed. And of course, exceptions should be allowed, let’s not forget people apply for short sales when they are going through chemo, a child is terminally ill, etc. and people also work from home.
Tni
Ron, my question is WHY does the property HAVE to be listed? Granted I know the vast majority of short sales are, but let’s say a person in financial distress wants to sell their home and knows a neighbor, or someone else who had previously expressed interest in buying it. Why do they NEED a real estate agent? What if the seller gets an appraisal to find out FMV and accepts an offer in that situation. Is it FRAUD? No. WHY does Bank of America feel they know what’s best for every seller. I GET that they want to minimize there loss, but there ARE other alternatives to list property. In my example it’s likely BANA would yeild MORE for their bottom line net because they AREN’T paying a commission. The seller has made an attempt to find out FMV by getting a full blown appraisal and taken an offer within that appraisal range. Why is this not acceptable? Not all servicers are this close minded thankfully.
Tni, thank you for your insightful and in-depth comments.
Maryann, your comments make sense. I have learned that you can’t expect sense out of most bank loss mitigation personnel (nor Fannie and Freddie). I have worked on re-instating a short sale approval that was revoked. The problem was that the seller and listing agent complied with the bank representative’s instructions to change a listing price — but the supervisor disagreed with the bank employee’s instructions so punished the buyer and seller by revoking the approval. A person with common sense would never behave like that.
I think that lying and solely self-interested behavior is so ingrained in both the banking culture and in Washington, D. C. that loss mitigation departments and Fannie/Freddie don’t believe anyone can be honest and act with common sense.
I have a dual major in political science and economics. I used to think there was rationality in economic behavior and compromise in politics. Sadly, I have become entirely skeptical about both.