Negotiating cancellation of debt on 2nd mortgage
I am looking at a sub2 deal with the following details:
1) Motivated seller that understands sub2 deals
2) 1st mortgage with rate of 2.75% 30 year ARM (loan is current)
3) 2nd mortgage (originally a HELOC) has been in default for 5 years & was already charged off (a charge off means the lender is no longer in collection mode, wrote off the debt, but does NOT equate to the debt or lien against the property being canceled as some people think). The servicer maintains the debt in-house and did not assign the debt for outside collection or to an attorney. They also stated they will not foreclose.
4) Seller's credit is already damaged, has more than one repo, foreclosure, and is insolvent, therefore, there would be zero tax liability for the seller from the cancellation of debt income/forgiveness of debt
Given the above, I have every incentive to keep the 1st and take the property sub2.The road block is the 2nd. The servicer of the 2nd requires full financials from the seller and claim they will not accept less than 50% of the balance which is unacceptable (seller already inquired, but never went through with it). I have had two other deals in which the 1st mortgagee canceled the debt 100% and the seller was insolvent, so no taxes owed for him either. Talk about a windfall for both parties! Why on earth would a 2nd, whose already charged off, and that's been in default for 5 years, still expect 50% settlements?
The way I see it, I have two options to try and force this stubborn 2nd mortgagee to cancel or at least discount the debt to 10% or less:
1) Hire a flat-fee attorney experienced in negotiating settlements on 2nds, especially one experienced in negotiating short sales.
2) Put the 2nd mortgagee through a short sale by having the seller short sell the property to me. The question is - can that be done by keeping the 1st mortgagee excluded from the short sale?
All input and advice welcome and appreciated.