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Short sale - second bank dragging feet

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Anand Sukhu

Nov 25 '09, 12:04 PM


I've been waiting on a short sale as a buyer for the last 5.5 months.

The home has two mortgages.

The first bank approved my offer, and is offering the second bank, Chase, $5K to buy them out. The second bank has not even countered the first - instead they continue to put the owners through the ringer. They have asked for every bit of financial information dating back 2 years including their 401K's. This has gone on for two months now.

Has anyone had any experience with Chase? What do you think their strategy is here? It looks to me like they are building a case to possibly sue these owners for the outstanding. My thoughts are this should be separate from the short sale approval, since they can sue anytime.

What benefit would Chase have to not approve this short sale? I would think if this goes to foreclosure, Chase would get nothing, since the house would sell for less than what is owed on the first. At least with this short sale they get the $5K payout from the first and any incentives the government provides. The only think I can think of is them not wanting to take the loss on thier books now.

Does anyone have any idea what's going on? Do you think I have a chance of this coming through? Should I continue to wait?


Edited Jun 26 2010, 10:38


Steve Babiak

Real Estate Investor from Audubon, Pennsylvania

Nov 25 '09, 12:39 PM


Originally posted by boombyea:
... The second bank has not even countered the first - instead they continue to put the owners through the ringer. They have asked for every bit of financial information dating back 2 years including their 401K's. This has gone on for two months now.

Has anyone had any experience with Chase? What do you think their strategy is here? It looks to me like they are building a case to possibly sue these owners for the outstanding. My thoughts are this should be separate from the short sale approval, since they can sue anytime.

...


Although it might be true that the lawsuit for recovering a deficiency can be brought after the sale concludes, the lender has more leverage before approval of the sale. So that way they can force the owners to submit any and all requested paperwork; the lender is hoping for some signs (assets) that indicate whether these owners would be worth pursuing in such a lawsuit.

If the approval happens first, there is no longer any reason for these owners to cooperate ...

The lender might also be looking to get the owners to sign a promissory note to cover part (or all) of the deficiency. The lender might be planning on selling the debt to some debt collection firm. The lender might be hoping the owner dips into the 401K funds.

It's also possible that Chase is not the owner of the note that the mortgage secures; they might be a servicer or trustee, and they might have to get approval from the note owner.

And there are probably lots of possibilities that I haven't even brought up.


Edited Jun 26 2010, 10:39


Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


Scott Hubbard

Rehabber from Tucson, Arizona

Nov 25 '09, 12:43 PM
1 vote


There are many variables to consider like which type of loan is the second?

If they are asking for the borrower's financials they are probably investigating to see how much money they can get out of them.

Another variable is which state is the property located. State laws play a major role on what leverage the second might have.

After 5.5 months, you probably have another concern, the agent handling the negotiation does not have the skill and experience to handle this. They should be negotiating both the 1st and 2nd simultaneously.

You might try reading this thread as it might apply to your situation.

http://www.biggerpockets.com/forums/103/topics/41994-1st-accepted-help-with-2nd-

If you want a mediator, hire an RE agent. If you want a negotiator, hire an investor.
Good luck


Edited Jun 26 2010, 10:39 by Scott Hubbard


Anand Sukhu

Nov 25 '09, 09:51 PM


If the approval happens first, there is no longer any reason for these owners to cooperate ...

Yes, I suspected this as well. I believe now they have pretty much every piece of data they could possibly collect, so hopefully they make their next move now.

Another variable is which state is the property located. State laws play a major role on what leverage the second might have.

This is in Florida. The owners are working with an attorney that specializes in short sales. I have had no opportunity to help with the negotiation.

I read the other thread and didn't know that banks sell their delinquent loans to collectors for 30% of value. This is interesting because this second loan is around $150K and the first bank is only offering $5K. Based on this, there would be no way the second bank would take any less than $50K, and there is no way the first would offer this amount. Is there any way this would play out in my favor? Is this an inevitable foreclosure scenario? Can the 2nd bank still approve the short sale and sell the delinquent loan?


Edited Jun 26 2010, 10:39


Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Nov 25 '09, 11:02 PM


First mortgages might get sold for 30% of their face value. Seconds will change hands for much, much less. They have essentially no value because, as you note, the house is worth less than the balance on the first.

The holder of the second could sell it. Then the new owner would need to approve the short sale.

You don't if you're intending to occupy the property or are an investor. Short sales (and REOs) are an exercise in frustration. I would certainly not have waited five months with only this one deal on the table. Find more houses, make more offers, and you'll eventually find something to buy.


Edited Jun 26 2010, 10:39


Jon Holdman, Flying Phoenix LLC


Scott Hubbard

Rehabber from Tucson, Arizona

Nov 26 '09, 08:04 AM


Originally posted by boombyea:


I read the other thread and didn't know that banks sell their delinquent loans to collectors for 30% of value. This is interesting because this second loan is around $150K and the first bank is only offering $5K. Based on this, there would be no way the second bank would take any less than $50K, and there is no way the first would offer this amount. Is there any way this would play out in my favor? Is this an inevitable foreclosure scenario? Can the 2nd bank still approve the short sale and sell the delinquent loan?



The reason the lender in second position might get up to 30% is because, in Florida, the lender in second postion can file a deficiency judgment against the borrower for 100% of the principal plus, reasonable attorney's fees, interests, and penalties. Bad debt with a judgment is worth more than unsecured bad debt.

In my experience, when you have a $150K second mortgage, the first should offer at least 10%. In my opinion, the attorney failed to get the normal 10% payoff amount which is a major problem.

The next problem, is their is an attorney involved. Attorney's will generally try to work within the lenders in-house or outside legal department. These things tend to drag out especially when their is an outside attorney involved. As we all know, attorneys bill by the hour. As a result, this thing will likely drag out for months.

My advice: Determine whether or not the seller is willing to come to the table with a cash contribution. There is a very large spread to overcome and they only way I know to fill in the gap is for you or the seller to pay more.

I received an approval letter recently settling a $100K second mortgage for $7.5K in Florida. So, it is possible, but in this case the buyer and the seller had to kick in the difference.

Good Luck!


Edited Jun 26 2010, 10:39 by Scott Hubbard


Anand Sukhu

Nov 26 '09, 08:57 AM


I thought you could only work through the first bank, unless their loan was 100% satisfied.

What happens if the first bank decides to foreclosure? Doesn't the second bank get wiped out? I suppose they can sue the owners after the fact.


Edited Jun 26 2010, 10:39


Scott Hubbard

Rehabber from Tucson, Arizona

Nov 26 '09, 01:21 PM
1 vote


Originally posted by boombyea:
I thought you could only work through the first bank, unless their loan was 100% satisfied.


There are many ways to satisfy the second and you can close that gap. Any deals made should be disclosed on the HUD1.

Originally posted by boombyea:
What happens if the first bank decides to foreclosure? Doesn't the second bank get wiped out? I suppose they can sue the owners after the fact.


The seconds security interest will indeed be wiped out. But, in Florida, as well as many other states, the second lender can file a judgment against the borrower for the loss amount which includes fees, interest, and penalties. Once they have the judgment they can garnish wages. The 1st also can file a judgment as well.




Edited Jun 26 2010, 10:39 by Moderator: fixed quoting


Anand Sukhu

Nov 26 '09, 10:01 PM


Originally posted by Scott Hubbard:


The seconds security interest will indeed be wiped out. But, in Florida, as well as many other states, the second lender can file a judgment against the borrower for the loss amount which includes fees, interest, and penalties. Once they have the judgment they can garnish wages. The 1st also can file a judgment as well.





So shouldn't this be separate from approving the short sale? In other words they can approve the short sale and still sue.

I understand they are most likely using the short sale approval process to gather as much info to build their case, but after they have everything, I don't see how it is in their interest to not approve the sale, get the $5K from the first plus any incentives the Gov gives, and then sue later. Seems like at the end of the day they'd be $5K (plus Gov incentives) richer to approve vs. going to foreclosure and suing later in both cases.

Sorry, the logic here is a bit frustrating.


Edited Jun 26 2010, 10:39


Steve Babiak

Real Estate Investor from Audubon, Pennsylvania

Nov 27 '09, 01:53 AM


Originally posted by boombyea:
...

Sorry, the logic here is a bit frustrating.


Only because you're not a bank :D


Edited Jun 26 2010, 10:39


Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


Anand Sukhu

Apr 28 '10, 09:25 AM


Wanted to give you folks an update... the second bank finally came around after 11 months!!

After digging deeper the realtor found that the owners were still paying the second mortgage (an automated payment). They stopped this and wrote a nasty note to the CEO of Chase and continued to pester the negotiator. The negotiator finally approved the sale after getting us to sign an arms length agreement.

We plan to close this Friday if all goes well. As of now the appraisal and all paperwork look good.

I guess patience and persistence is the key to these deals.


Edited Jun 26 2010, 12:39


Scott Hubbard

Rehabber from Tucson, Arizona

Apr 28 '10, 11:29 AM


Originally posted by boombyea:
Wanted to give you folks an update... the second bank finally came around after 11 months!!

After digging deeper the realtor found that the owners were still paying the second mortgage (an automated payment). They stopped this and wrote a nasty note to the CEO of Chase and continued to pester the negotiator. The negotiator finally approved the sale after getting us to sign an arms length agreement.

We plan to close this Friday if all goes well. As of now the appraisal and all paperwork look good.

I guess patience and persistence is the key to these deals.

Congratulations


Edited Jun 26 2010, 12:39


Matt Feato

Real Estate Investor from Springfield, Massachusetts

Apr 28 '10, 01:52 PM


Leave it to the owners to screw themselves further :D

Congratulations indeed...now sell this thing and make a profit!


Edited Jun 26 2010, 12:39


Ted Akers

Real Estate Lender from Denver, Colorado

Apr 28 '10, 09:18 PM
1 vote


I fund purchases of short sale flips so see deals from various sources. Each deal is unique and subject to the lender and loss mitigators workload, etc. However, from my seeing deals negotiated by various types of players there is no question in my mind - professional full time short sale negotiators deliver a far superior end product (not just to the investor but typically to the homeowner also). You have a very good one responding to you on this thread. 11.5 months paying an attorney hourly? That time frame can happen, but rarely with a professional negotiator. And - OUCH!


Edited Jun 26 2010, 12:39


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