Need Your Input

I know this isn't going to be helpful but just as a response to something you said... unfortunately, yes, sometimes they foreclose over something like this. But if this is a recourse loan , that second loan will begin pursuit of your seller after the foreclosure. So if it is recourse, your client will have to deal with it now, or later. So have you/they considered a promissory note, or other payment arrangement offer to avoid foreclosure?

My answer may not be what you want to hear - but general advice....

To get short sales to work you have to:

1. Know the lender / investor profiles --- and their typical allowances and percentage requirements at the beginning of marketing the listing.

2. Effectively market for a buyer that will be able to assist in paying any differences in lien allowances, unknown costs, etc... and set proper expectations with buyers as to this possibility from the start

3. Set proper expectations with your sellers - that they may need to contribute to lien release ....and be certain they are "prepared" to do so.

Ou-side of this -- it is just imperative to have a thorough hardship package prepared for junior liens, esp. for truly "insolvent" sellers so that the junior lien is aware that there may not be an option to get money from the seller.

If the difference required by the junior lien were paid by a buyer - but, it put their gross purchase price outside of the appraised value...you can also send copy of the appraisal to the junior lien.

Most junior liens, esp. HELOC, know that buyer's may be willing to pay and they have proven statistically that holding out will get them paid vs. giving in.

Good luck

Amy Ransdell; The Southeastern Group; Atlanta, GA; 770-966-7040; amy@southeasternpropertiesatl.com

If it is a non-recourse loan I do not know why the Seller would want to sign a note to continue paying for a property they no longer own. I had a short sale where the 2nd wanted more than the $3,000 the 1st was willing to give up. When I finally told them that the 1st would only give $3,000 and no more, they said "oh we did not know that was their bottom line". Finally we worked out that they would settle for $5,000. The remainder came from commissions and the Seller and Buyer brought in the rest so that they could have their $5,000.

Gail, you're right.... though consider the following. If the second is unreasonable and will not concede to the lower amount, then the seller has two choices. Foreclose in order to protect themselves from further recourse or note signing, or they sign a note to get it "over with" and avoid foreclosure. Unfortuantely these banks know they have these sellers in a tough spot. And unfortunately some sellers will decide the foreclosure route here in California at least, in order to protect themselves on non recourse loans.

The reason why I had to ask the jr. lienholder to resubmit for approval on the restructuring is because the 1st lienholder will not allow any more than $3,000 to the 2nd. I have email trails where I asked my 1st negotiator that if I convince the interested parties in this transaction to all contribute to the difference for the 2nd, if she would approve. Her answer was "No, any monies being paid by buyers or anyone else must come to IndyMac."

That is why we have to restructure the same net to the 2nd, with the difference in the form of a note between the seller and the lienholder. A note does not have to be shown on the HUD, and nothing is being done illegally or unethically. From what I understand, the 1st has no rights to get involved in a promissory note between the seller and jr.

Both loans are purchase money loans. Never been refinanced. But I'm still not 100% sure as to whether a purchase money 2nd is considered recourse or non-recourse. Anyone have a clear answer to that?

It's time to play hardball with the second lienholder. Find out if it is Fannie or Freddie and call the resource hotline. Anybody knows if it goes to foreclosure, the second will get nothing. If I were the seller, I would not sign a note for the balance either on a house I don't own.

It is time to get the actual investor involved and stop messing around with the loan servicer of the 2nd lienholder. If they know that they will lose everything, they will talk to the loan servicer and tell them to make a deal.

This has worked for me, maybe not for others, but these two people have to get on the same page or you don't have a deal anyway. The first will usually never budge because they don't have to. The loan servicer for the 2nd is being very naive, which is why you need to get fannie or freddie involved, it is their $$$.

Worth a shot. Let us know how it works out, and in the future, when you know there is a second, get them involved sooner in the process and these issues won't happen at last minute. I learned that the hard way once ;-)

Good luck!

Not to overtake the original posters responses - but I'll be in the same boat soon if I don't do what you ladies are suggesting so I just want to be clear of the steps.

I called both 1st and 2nd mortgages and asked the rep for the 2nd what is the minimum her bank will accept. She said 'well it will be up to the 1st to decide'. The 1st (GMAC) said 'it's up to your seller to decide what to give 2nd' (Principal). I understood that to mean that most likely GMAC will reject any amount of money allocated to 2nd on the prelim-hud1. Anyone with exp with GMAC being 1st?

Am I reading correctly above from your responses that buyer should modify offer to exclude the amount that will be given to 2nd and we have an addendum somewhere not submitted with packet to pay off 2nd at closing via the buyer??

Thanks-

I am very glad that I found this group and joined. I am able to get very important information. I am new with the short sale process and learning every day. I do believe that the short sale process should not have ever started. The out come is the same, the seller continues to have bad credit whether in short sale process or foreclosure. Please take short sale away!!!

Happy Halloween to everyone

Pamela - there is a many year difference in credit damage and the abilty to buy again with short sale vs foreclosure. Also the expense to the lenders and now therefore to us as the gov. seems to be taking over the lending industry is much greater for a foreclosure than a short sale.

Check out the Harris Real Estate Univ for some short sale coaching and info to get a better understanding of the process especially if you are going to be handling them. You need to know what you are doing and why or let someone else do them. Referals are nice if you need to hand it off.