Second mortgage is a personal note - now what?

Question

Does anyone have experience negotiating a short sale in which the second note holder is a personal note (i.e. not a financial institution).

We've reached an agreement with the bank, but the person who holds the second note has rejected our offer. My understanding is that the second note holder doesn't get anything if the house goes to foreclosure. Is that different when it concerns a personal note?

Just trying to understand why the second note holder is blocking the sale and what we can do to help it along. Any thoughts?

Minna Reid · Answer

If the second note holder is a friend or family member with no intention to pursue, why would they try to block the short sale?

Jon Holdman · Answer

Can you buy the first and proceed with the foreclosure?  If there's no redemption the second is out of luck.

A Nonymous · Answer

Thank you for your quick replies!

You were correct to assume there is no equity beyond the first note and the person holding the second note is either a family member, or a personal friend of the sellers. They do not appear to have any intention of going after them for the remainder of the balance.

Also, MD does not have redemption rights as far as I can tell, so that's not an option either.

I guess we will just have to be patient a little while longer and hope they come to their senses! :D

Jon Holdman · Answer

Here in CO the second lienholder would have redemption rights after the foreclosure.  Is that the case where you are?  Perhaps they think they can get a better deal then.

Will Barnard · Answer

Assuming there is no equity beyond the first note, they would be foolish not to accept anything as their note will be wiped off when the first forecloses. You could offer to have them give a release of lien freeing the property of the second and still giving them the opportunity to go after the debtor via other avenues. If they balk, let the foreclosure process advance closer as time could have a factor on their situation knowing they will lose it all.