Q: I bought a fixer-upper a few years ago using a first mortgage with Bank of America and a second mortgage with CitiMortgage. This was not an investment property; I lived in it, but because of the market, have never been able to do the work the house needs, which would run about $150,000.

I put the place on the market as a short sale, and got an offer that was really low, but understandable because of all the work that’s needed to make the house really livable, and the bad reputation my city has for making it very complicated and expensive for homeowners to get their work plans approved.

Bank of America instructed me to enter my financials and the details of the offer into their new online Equator system. The offer was rejected, but I don’t feel that the bank has all the information it needs to make a reasoned decision on the offer. And the same day the system rejected the offer, I read that both of my mortgage banks are now going to offer principal reductions to borrowers. Do you think this is a sign that I should be seeking a loan modification to reduce my mortgage balances?

A: Even the most seasoned short-sale agents are still working to understand Bank of America’s Equator short-sale system. This Web-based processing system is one of several recent market developments intended to streamline and shorten the short-sale process, along with the Obama administration’s Home Affordable Foreclosure Alternatives Program.

Over the last few years, the problem with short sales was that they were inadequately systemized and automated, and were overly dependent on negotiations between an individual homeowner and an individual negotiator. Bank loss-mitigation negotiators were so backed up it would take three or four months just to get your short-sale file on one’s desk, then another few months to get their answer on your short-sale application.

During that gaping time period, good buyers would move on to other properties and sellers would lose their homes altogether to foreclosure, giving short sales an unnecessarily bad reputation for being unclosable in many cases.

While these efforts to streamline short sales — Equator included — are definitely a step in the right direction, their shortcomings are glaring in cases like yours, where unique facts need to be taken into consideration by a human.

We don’t know much about the inner workings of Equator, but we as an industry have to assume that it generates its rejections based on some sort of algorithm that accounts for some automated valuation of your property’s value and/or your financials — including how much you owe, and your income, assets and obligations.

There is a generic negotiator e-mail address that Bank of America provides for short-sale listing agents to use to contact a human loss-mitigation representative; I haven’t heard many folks saying they’ve been successful reaching anyone there, but it does make sense for your agent to give it a shot. …CONTINUED

However, it also makes sense to go back to your prospective buyers, inform them their offer was rejected, and invite them to submit a higher offer. This might feel like playing with Monopoly money to them, with no way to know what number they would need to hit to get the automated system to allow the offer to move forward, but it’s really their only alternative at this point. Additionally, your listing agent should continue to market the property for sale, seeking a higher offer.

In terms of the principal-reduction headlines both banks have been making lately, I wouldn’t put all my eggs in that basket if I were you. The numbers of homeowners who will actually be able to take advantage of these programs are usually vastly smaller than projected, often due to the labyrinthine guidelines for qualifying and the lagging timelines on which the banks work, in practice, to execute them.

For example, while Bank of America says approximately 1.5 million of their borrowers are 60 days or more late on their loan payments (a requirement for their principal-reduction program), only 45,000 will likely qualify for the program, by the bank’s own estimates. And some of the qualifications required have more to do with the identity of the investor who owns your loan, for example, than anything you can control or influence.

You should certainly look into whether you meet the basic criteria for either or both programs, which you can find on the banks’ websites. But you should also certainly avoid counting on it.

For example, Bank of America will be reaching out to borrowers who qualify, rather than allowing random borrowers to apply for it because they want their principal reduced.

Your better strategy is to apply for a loan modification (consider going through NACA.com, whose HomeSave program has a great reputation), respond to any outreach you receive from your bank for a principal reduction, and seek out a short-sale buyer who will make an offer closer to the amount you owe on your loans.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.


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