Trying to buy short sale w/ 2 bank loans. I offered 184k to seller and they accepted, sent to Bank 1, that has 212k loan. Bank 1 agreed and offered 1.5k to Bank 2, that has 38k loan. Bank 2 is refusing to sign, but has until June 15 to do so, or it goes to foreclosure.
If it goes to foreclsoure does Bank 2 get anything?
As a buyer, what, if anything, can be done to help Bank 2 agree to cut it's losses and sign off?
I know a lot of short sales slip through the cracks, but if this is some strategy to get this thing moving, I'd like to try it.
Probably not. If the property is worth less than the 1st mortgage, it may not sell at auction unless the lender agrees to accept less than what is owed, in which case the 2nd mortgage holder will get zip. Of course, there is the possibility of the 2nd mortgage holder making the 1st mortgage current then foreclosing themselves, but highly unlikely if the property is upside-down. The most likely case is the property will revert back to the 1st lender (like happens with most REO's) with the 2nd left holding the bag.
As a buyer, what, if anything, can be done to help Bank 2 agree to cut it's losses and sign off?
I wish I had some tips for you, but I'm learning this stuff as well.
We request a minimum of 10% for short payoffs for our 2nd liens. If this amount is not met (no matter what the first is paying out of their proceeds) we usually hold firm until the FCL sale. Depending on the state, the 2nd may lose everything at the FCL sale for the 1st, but they may retain their right to collect on the balance. If they are in a trustee state or the original 2nd lien was used as purchase money in CA or AZ then the 2nd will be more likely to make the $1.5K work as the the 1st gets closer to the fcl sale date. This is because they know they will get nothing at fcl and will have no right to go after the remaining balance.
In my experience Jr. Mortgage Liens have the most leverage in SS negotiations when the 1st is nowhere near fcl sale. They are going to hold firm to the amount they want until the fcl sale date is confirmed and gets closer.
The battle is won or lost on how before you even hit the filed. You need to dictate to the 1st how you want the payoff to be distributed. When there is a second mortgage, you should have two seperate HUD1's. One for a proposed settlement to the 2nd for 15% which is to be sent to the 1st mortgage; and a second to be sent to the 2nd for a short payoff offer of 5%. Generally you will settle somewhere in the middle. Once the lender begins to dictate terms, your value will be lost.
In your case, the listing agent does not know how to negotiate and is probably allowing the lender to dictate its terms. I can tell you from experience, that this only happens when you allow this opportunity to occur.
Since your the buyer, your basically screwed because the ball is in the other agent's court. If you could somehow convince the agent to counter-offer the proposed payoff to the lender, you might still salvage the deal.
Yes, the 2nd could get nothing from the sale. If the 2nd can go after the seller for the loss, then they still might be able to get something post foreclosure.
The 2nd, in my opinion, is doing the right thing. The first is clearly not offering enough to the second. You need to close this gap.
Unfortuately, there is much that than can be done, but I cannot be specific as I do not know the circumstances behind the loan tyoes, the lenders, or the investors who own the interest. Plus, most of my suggestions would be moot at this point since a successful short sale is about strategy. As this has already submitted and the lines are drawn, it is much more difficult to be regroup and still be successful.
In my opinion, it is up to the agent handling the negotiation to take charge and do their job. If your going to war, you will want a good leader with combat experience taking command. Sounds like to me, you are going to war with a latrine scrubber.
Outside of the agent stepping up and doing their job, you could always offer to come out of pocket to sweeten the pot. This works through escrow where the seller will sign over a general warranty deed for the amount you contribute. You make your contribution contingent upon the successful sale. If your borrowing your money through a traditional lender, they might take issue to this.
Another way is for the seller to contribute the difference needed. Afterall, it is in the best interests of the seller for this to close. The contribution should be minimal. If the seller does not have any cash, perhaps a promissory note to the 2nd would suffice.
Still yet another way, is for the agents to contribute a portion of their commissions, or you, the seller, and the agents contribute.
