Purchasing a short sale with a second mortgage?
Monday, 12. July 2010
I’m in the process of purchasing a short sale property in California that has two mortgages on it. The primary has accepted the offer but I quickly found out there is also a small second. It was probably an 80/20 deal.
How does this generally work and who negotiates with the second? Also, do I have any obligation to the second if they choose to not settle? I assume if they don’t agree the deal gets killed and it goes to foreclosure where both banks will lose.
Any insight is appreciated.
"yo" Says:
This much I know
Usually, the second lien will join in the foreclosure as plaintiff, or, attend the sale and bid up to its exposure or upset price.
You have to look at the proposed short sale as a whole.
Neither lender will want to accept less, unless it is in their best financial interest to do so. The lender will make an estimate how much they can recover based on estimated value. If your short sale proposal meets or exceeds their anticipated net recovery after foreclosure, then they will probably accept your proposal.
If the first lienholder is to accept less than they are due, then the second will not get much if anything at all.
John S Says:
good
1veY Says:
If this is a shortsale it is a very complicated process and you should not attempt yourself. Especially if there are two mortgages on property.
You need to have a real estate agent that is EXPERIENCED in SHORTSALE NEGOTIATIONS doing this. Not just any agent. You will most likely have a buyers agent representing you but it is the shortsale LISTING AGENT that is of the utmost importance as they will be dealing with both banks. Your buyers agent needs to know how to interview this listing agent and ask proper questions. Is this a primary residence? Is it a rental/investment property being sold? Makes a difference. Who are the banks? If one is CountryWide or BofA prepare for a very lengthy wait. Upwards of 5-6 months perhaps. They are overwelmed with shortsale requests and are well known for being THE MOST DIFFICULT bank to work with. Is best if listing agent is doing this on a regular basis as they will have contacts in loss mitigation depts and with several different bank negotiators which most people do not. The agent will negotiate a settlement amount to be paid off to the second in order to recieve a letter that must be given to the first in order to release the debt and transfer clear title to new owner. You must have this for a shortsale to be processed.This must also be checked and done for any other liens which may be on the property such as unpaid taxes, HOAs, sewer bills etc. as people trying to shortsale properties usually are not paying many bills you have higher chance of liens being placed on property. Be sure to check out. Second may not be only lien!!
If it goes into foreclosure banks do not neccessarily lose. Many banks carry insurance on their loans in case of default. Some homeowners even pay for the insurance themselves along with monthly mortgage payment. It is called PMI or private mortgage insurance. In case homeowner goes into default or doesn’t pay bank the bank gets paid money by insurance company if they foreclose. Not if they accept shortsale and forgive debt you see?? So they foreclose , recieve insurance monies and sell property as REO or bank owned property and recieve more money. Why do you think so few shortsales are approved and there are so many REOs for so cheap? How does bank lose this way ?? Why do you think they spend months crunching numbers in order to approve a shortsale ? They are banks. They do not arbitrarily go giving money away without it making sense for them.
You need to have a good offer for a shortsale in order to have the banks accept it in the first place. You also need to know what you are doing to make sure you do not become encumbered with additional cost along the way. Title company will have to make sure liens are cleared before they can transfer clear title but current owners of shortsale property most likely won’t be able to come out of pocket and pay many these costs themselves. Make sure you have a good agent working for you that knows what they are doing and can explain these things to you along the way and protect your best interests..