Real Estate Agent · NJ · Member since 2018 · 8 posts · 4 votes
During a short sale when the primary lender is owed 361k and secondary HELOC is owed 78k, what happens when the package was submitted to the primary only? How can the secondary position get what is owed to them?
Put $5000 as a 2nd lien pay off. Youll need to do 2 short sale packages and the 1st will ultimately decide the amount to the 2nd.
I disagree. The first may say that's all they are paying but the second can say, they are not accepting that. The first cannot do anything without the cooperation of the junior lien holder. The second can sit on their hands and do nothing forcing the senior lienholder to cancel a short sale. More often than not, when the junior digs in, the agent will often times use the "They'll file bankruptcy and you'll get nothing" threat or the, "They will let it go to foreclosure and you'll get nothing" threat. If they file bankruptcy, depending on the chapter, they could be paid in full. if there is one dime in equity over the balance of the senior, they can't strip the lien and we aren't in the economy to where there wouldn't be equity above senior lien balance in most cases. If they let it go to foreclosure, As a sold out junior, lender has full rights to pursue the borrower for the entire balance so, it's best that each lienholder be reasonable but in no way does one have the upper hand over the other. No way does the first ultimately decide the amount to the 2nd.
You will need to submit the short sale package to the 2nd lender as well. On the prelim HUD that you submit, you will allocate funds to the 2nd lien. How much the 1st lien will allocate to the 2nd lien depends who the investor is on the 1st loan. If you're already in negotiations with the 1st, ask them how much they will allocate to the 2nd mortgage then adjust your HUD accordingly and get everything submitted to the 2nd for review.
The second will receive a small pay off and you must also negotiate the short sale with them. The amount the junior will get is determined by the investor on the first. Do you know who the investor is?
Yes, the first has to agree to an amount going to the second And the second has to agree to that amount......nothing can happen without both agreeing. The buyer should expect to have to come up with extra cash to make up the difference, above and beyond the contract price.....which means you adjust your contract price accordingly, before submitting.
If the house is underwater on just the first, the second should expect about 5%.
All lien holders will need to be settled. If they are receiving money in less then full it will need to go through the short sale process too. The 1st lien holder will allot money to the 2nd and then it will be up to the 2nd if they accept that or want more.
Put $5000 as a 2nd lien pay off. Youll need to do 2 short sale packages and the 1st will ultimately decide the amount to the 2nd.
I disagree. The first may say that's all they are paying but the second can say, they are not accepting that. The first cannot do anything without the cooperation of the junior lien holder. The second can sit on their hands and do nothing forcing the senior lienholder to cancel a short sale. More often than not, when the junior digs in, the agent will often times use the "They'll file bankruptcy and you'll get nothing" threat or the, "They will let it go to foreclosure and you'll get nothing" threat. If they file bankruptcy, depending on the chapter, they could be paid in full. if there is one dime in equity over the balance of the senior, they can't strip the lien and we aren't in the economy to where there wouldn't be equity above senior lien balance in most cases. If they let it go to foreclosure, As a sold out junior, lender has full rights to pursue the borrower for the entire balance so, it's best that each lienholder be reasonable but in no way does one have the upper hand over the other. No way does the first ultimately decide the amount to the 2nd.
The 1st lien definitely does decide the fate of the 2nd lien. The 2nd lien holders know this and usually except their best loss mitigation, which is to take something (short sale) over nothing (foreclosure). If the 2nd feels the seller has enough assets, then they either want a personal note signed or a pay down prior to closing so on the HUD they only net the $5000. The 2nd lien will not influence the 1st.
The 1st lien definitely does decide the fate of the 2nd lien. The 2nd lien holders know this and usually except their best loss mitigation, which is to take something (short sale) over nothing (foreclosure). If the 2nd feels the seller has enough assets, then they either want a personal note signed or a pay down prior to closing so on the HUD they only net the $5000. The 2nd lien will not influence the 1st.
Not even. and getting a personal note in many states is a violation of law, especially here in California, and any other anti deficiency state.
1st liens decide how much money they will allot to subordinate liens. Some investors allow contributions to subordinate liens and others do not. A 2nd mortgage does not have to accept what the senior lien holder is offering as a payoff. Many deals fall apart due to not being appease subordinate lien holders. Seller contributions and promissory notes are state and investor/insurer specific.
I have a short sale right now that the 1st lien is offering 6,000 to a 2nd mtg lien which is relatively common per many investors. The 2nd lien wants 75,000. Some subordinate mtg lien holders play ball by 1st mtg investor guidelines and others don't.
@Christian Tibok The last short sale I did had the 1st offer $3,000 to the second, which they approved.
About 4 weeks before closing, the 2nd changed their mind and said they wanted $8,500. The buyer had to either bring $5,500 in cash to closing of lose the deal.
That $5,500 couldn't be financed because the 1st would have grabbed it as they were still coming up short. It was still a good deal, so the buyers saw it through.
The second will receive a small pay off and you must also negotiate the short sale with them. The amount the junior will get is determined by the investor on the first. Do you know who the investor is?
Yup, normally the second gets thrown under the bus and gets forced to accept a fraction of what they are owed.
The second will receive a small pay off and you must also negotiate the short sale with them. The amount the junior will get is determined by the investor on the first. Do you know who the investor is?
Yup, normally the second gets thrown under the bus and gets forced to accept a fraction of what they are owed.
The junior doesn't get forced to accept anything. If they do accept what's offered, it's by their choice and its in line with what their analysis says is their highest and best recovery amount. Nothing happens unless they agree.
@Ron S. - Actually some juniors are forced to accept. You may remember the lawsuit against the big banks years ago? As a result many of your larger banks agreed to take a standard lump sum as allowed by Fannie/Freddie... most other banks followed suit. I haven't had a single instance in years where a second would not agree to what the first was offering. If you are negotiating with a first and second, its because the second has ZERO coming to them in the form of equity already. Most see the light.
@Ron S. - Actually some juniors are forced to accept. You may remember the lawsuit against the big banks years ago? As a result many of your larger banks agreed to take a standard lump sum as allowed by Fannie/Freddie... most other banks followed suit. I haven't had a single instance in years where a second would not agree to what the first was offering. If you are negotiating with a first and second, its because the second has ZERO coming to them in the form of equity already. Most see the light.
There are no statutes in existence that forces a junior lienholder to accept what a first lienholder offers. Even a junior lienholder that participated in the 2MP program (Which was the HAMP program for junior lienholders, which is now defunct) opted in to the program voluntarily.
I get what you are saying. My point is, there is absolutely no requirement for ANY junior lienholder to be forced to accept any short funds offered by a senior lienholder. Agreeing to, and being forced to are two separate paths. Yes, I agree, most agree but its because they choose to agree, not because they have to agree.
@Ron S. Its been a few years so my memory may be fuzzy but I'm pretty sure that settlement was not tied to HAMP. As part of the settlement many large banks did in fact get bound to take what Fannie/Freddie was offering and Fannie and Freddie agreed to standardize short sale processing as a result as well. I don't recall there being any expiration date on that, but either way they are still following those same guidelines. Of course that doesn't cover all the other lenders but anything Fannie/Freddie backed.
@Ron S. Its been a few years so my memory may be fuzzy but I'm pretty sure that settlement was not tied to HAMP. As part of the settlement many large banks did in fact get bound to take what Fannie/Freddie was offering and Fannie and Freddie agreed to standardize short sale processing as a result as well. I don't recall there being any expiration date on that, but either way they are still following those same guidelines. Of course that doesn't cover all the other lenders but anything Fannie/Freddie backed.
The national servicing settlement of 2012 included 5 lenders specifically. the program did sunset and it did not compel junior lien holders to be forced to accept senior lien holder offers. Fannie and Freddie purchase(ed) senior lien mortgages, not junior lien mortgages. Any guideline is just that, a guideline. Not a requirement, not a rule, not a law. The junior lienholder would have to agree to accept the offered funds, and are not compelled by any government body to do so.
@Ron S. - Correct those 5 agreed to take the standard amount a 1st backed by Fannie/Freddie allowed as a payoff to a jr. Fannie/Freddie have not changed their guidelines on payoffs to juniors since that time, and those 5, along with every other junior I have dealt with since that time is still following those same guidelines, whether or not there was a sunset on it or not (and I don't recall there being any sunset - perhaps you are confusing this with HAMP). All that could change tomorrow as we seem to be moving back towards the days of the wild wild west in short sales again - but as of now, you can be pretty sure that a lender with a junior on a property with a Fannie/Freddie first, will in fact agree to that standard amount. I have not seen a single case otherwise...not yet anyway. But I think we are off way off the original topic now...and again not all loans are Fannie/Freddie backed anyway. Key to knowing how the second will play out, is knowing who the investor is on the first.
@Ron S. - Correct those 5 agreed to take the standard amount a 1st backed by Fannie/Freddie allowed as a payoff to a jr. Fannie/Freddie have not changed their guidelines on payoffs to juniors since that time, and those 5, along with every other junior I have dealt with since that time is still following those same guidelines, whether or not there was a sunset on it or not (and I don't recall there being any sunset - perhaps you are confusing this with HAMP). All that could change tomorrow as we seem to be moving back towards the days of the wild wild west in short sales again - but as of now, you can be pretty sure that a lender with a junior on a property with a Fannie/Freddie first, will in fact agree to that standard amount. I have not seen a single case otherwise...not yet anyway. But I think we are off way off the original topic now...and again not all loans are Fannie/Freddie backed anyway. Key to knowing how the second will play out, is knowing who the investor is on the first.
There are no statutes in existence requiring a junior lienholder to accept any amount less than full payoff. I am both a Freddie and fannie senior lien lender and servicer, and a portfolio senior and junior lien servicer. I am not compelled to accept any senior lien offer, whether it is fannie or Freddie or not. My original point is and was, there are no requirements to accept a senior lien offer less than total debt.
Oh sure. I did not mean to imply a junior was ever forced to agree to a short sale...just that the amounts to which they will agree are usually very predictable. Thinking its quite rare for them to simply reject since in over a decade and several hundred short sales its never happened to me - but yeah of course - they can say no.