How or "if" to negotiate junior liens in a short sale.

[Sean Dougherty]

Trying to wrap my head around this process.

I have a seller who has a home underwater. Selling via short sale. She is divorced an although husbands name is still in on title, she has court approved authority to sell home without his signature.

There were 2 junior liens attached to the home.

1) Child support liens of husband. We were able to successfully detach this lien from the house.

2) Lien from ex-husbands private loan ($20k).  Is there a way to detach this lien from the home as well?

Should we attempt to detach that lien before we submit an offer to lender?

Or should we submit offer to lender and let them deal with the junior lien?

[Chris Seveney]

@Sean Dougherty

The junior lien holder will need to be approached at some point in the process. What they do is anyone’s guess.

[Doug Smith]

Junior liens still have a claim, so you'll have to deal with them. Here's one notable exception...if you buy the mortgage note instead of the property and then go through the foreclosure process, you can clean those liens up if you do it right. The explanation if more of a book than a post, but we did that for several years with property. I wish you well, but yes, you'll have to plan on dealing with junior liens. 

[Alex Deacon]

@Sean Dougherty I have a partner and we have bought hundreds of properties at the Pittsburgh sheriffs sale. He handles these issues when they arise. We sometimes will do a quiet title action and that can make the lien go away. You will need to talk to an attorney who is versed in the process and can offer you different options. I would not approach the lender just yet becuase you may open up a can of worms

[Minna Reid]

Well first of all, just because a judge gave her authority to sell without him, the lender doesn't care about that, and in a short sale there is a very high possibility he will still have to cooperate with the short sale, provide documents etc.

This is why I generally stay away from angry ex on mortgage situations. He can prevent this sale if he wants to be a jerk. 

Also - Unless you can get the 1st position lender to view the private loan as a second mortgage, the lender will most likely pay nothing to the junior - you will have to. Try anyway - but odds of success are low.

However -the junior will likely accept a short payoff for a lien release, especially if they can still pursue the ex for the rest. How much they will do it for is a mystery. I like to start with a $500 offer - see where it goes. Be prepared that as the buyer, this will be an out of pocket cost to you and cannot go into the purchase price. Also these negotiations are not between the 1st and the 2nd, they will be between you and the second. 

[Wayne Brooks]

@Sean Dougherty As @Minna Reid mentioned, the 1st mtg holder doesn’t negotiate with junior liens, you or the agent/negotiator handling the short sale does. The lender simply agrees to or rejects whatever amount is shown on a proposed closing statement that shows them their Net.

I always told buyers they should expect to contribute additional money, above and beyond the purchase price, to get these junior liens settled.

[John Slater]

Quote from @Minna Reid:

Well first of all, just because a judge gave her authority to sell without him, the lender doesn't care about that, and in a short sale there is a very high possibility he will still have to cooperate with the short sale, provide documents etc.

This is why I generally stay away from angry ex on mortgage situations. He can prevent this sale if he wants to be a jerk. 

Also - Unless you can get the 1st position lender to view the private loan as a second mortgage, the lender will most likely pay nothing to the junior - you will have to. Try anyway - but odds of success are low.

However -the junior will likely accept a short payoff for a lien release, especially if they can still pursue the ex for the rest. How much they will do it for is a mystery. I like to start with a $500 offer - see where it goes. Be prepared that as the buyer, this will be an out of pocket cost to you and cannot go into the purchase price. Also these negotiations are not between the 1st and the 2nd, they will be between you and the second. 

@Sean Dougherty - great knowledge in this post from @Minna Reid and a 'practical' perspective on getting the short-sale done.  Investors see it one way, agents handing the short-sale for the seller another way.  Only addition I would add is that the lender could accept a short-sale based solely on her request based on supplying court documentation granting her the rights to sell..... but, on the other hand they might now..... The selling process and short-sale negotiations are two different animals

[Sean Dougherty]

Quote from @Minna Reid:

Well first of all, just because a judge gave her authority to sell without him, the lender doesn't care about that, and in a short sale there is a very high possibility he will still have to cooperate with the short sale, provide documents etc.

This is why I generally stay away from angry ex on mortgage situations. He can prevent this sale if he wants to be a jerk. 

Also - Unless you can get the 1st position lender to view the private loan as a second mortgage, the lender will most likely pay nothing to the junior - you will have to. Try anyway - but odds of success are low.

However -the junior will likely accept a short payoff for a lien release, especially if they can still pursue the ex for the rest. How much they will do it for is a mystery. I like to start with a $500 offer - see where it goes. Be prepared that as the buyer, this will be an out of pocket cost to you and cannot go into the purchase price. Also these negotiations are not between the 1st and the 2nd, they will be between you and the second. 

 Thanks for that info. 

If I were to negotiate the junior lien, would that be out of escrow and a completely separate transaction? Which means if I paid out of pocket to satisfy junior lien and then went into escrow and for whatever reason sale does not go through...them I'm out that payment.....Correct? 

[Sean Dougherty]

Quote from @Wayne Brooks:

@Sean Dougherty As @Minna Reid mentioned, the 1st mtg holder doesn’t negotiate with junior liens, you or the agent/negotiator handling the short sale does. The lender simply agrees to or rejects whatever amount is shown on a proposed closing statement that shows them their Net.

I always told buyers they should expect to contribute additional money, above and beyond the purchase price, to get these junior liens settled.

 Thanks for the info Wayne. 

Would the senior lien holder ever pay a junior lien that is not a mortgage lien? 

Would senior lien holder even allow me to pay off the junior lien in full and then short them on their lien?

[Minna Reid]

Quote from @Sean Dougherty:

Quote from @Wayne Brooks:

@Sean Dougherty As @Minna Reid mentioned, the 1st mtg holder doesn’t negotiate with junior liens, you or the agent/negotiator handling the short sale does. The lender simply agrees to or rejects whatever amount is shown on a proposed closing statement that shows them their Net.

I always told buyers they should expect to contribute additional money, above and beyond the purchase price, to get these junior liens settled.

 Thanks for the info Wayne. 

Would the senior lien holder ever pay a junior lien that is not a mortgage lien? 

Would senior lien holder even allow me to pay off the junior lien in full and then short them on their lien?

 Sometimes they will, which is why it’s worth trying every time. Depends on the investor and what your BPO comes in at. 

And yes you can pay them in full, but you can likely do it for less. 

The junior is not as much of an issue as the ex-husband. if hes on these loans and won't cooperate you have nowhere to go with any of it. 

[Wayne Brooks]

@Sean Dougherty If the husband is on the loan it self, he absolutely will have to submit all the short sale documents and sign off on everything.

[Minna Reid]

Quote from @Sean Dougherty:

Quote from @Minna Reid:

Well first of all, just because a judge gave her authority to sell without him, the lender doesn't care about that, and in a short sale there is a very high possibility he will still have to cooperate with the short sale, provide documents etc.

This is why I generally stay away from angry ex on mortgage situations. He can prevent this sale if he wants to be a jerk. 

Also - Unless you can get the 1st position lender to view the private loan as a second mortgage, the lender will most likely pay nothing to the junior - you will have to. Try anyway - but odds of success are low.

However -the junior will likely accept a short payoff for a lien release, especially if they can still pursue the ex for the rest. How much they will do it for is a mystery. I like to start with a $500 offer - see where it goes. Be prepared that as the buyer, this will be an out of pocket cost to you and cannot go into the purchase price. Also these negotiations are not between the 1st and the 2nd, they will be between you and the second. 

 Thanks for that info. 

If I were to negotiate the junior lien, would that be out of escrow and a completely separate transaction? Which means if I paid out of pocket to satisfy junior lien and then went into escrow and for whatever reason sale does not go through...them I'm out that payment.....Correct? 

 You would never want to pay this prior to closing. You would want the second to issue a short payoff approval letter with a good through date that coincides with the closing date. Then pay everyone at close. 

[Rob Jacobs]

Quote from @Sean Dougherty:

Quote from @Wayne Brooks:

@Sean Dougherty As @Minna Reid mentioned, the 1st mtg holder doesn’t negotiate with junior liens, you or the agent/negotiator handling the short sale does. The lender simply agrees to or rejects whatever amount is shown on a proposed closing statement that shows them their Net.

I always told buyers they should expect to contribute additional money, above and beyond the purchase price, to get these junior liens settled.

 Thanks for the info Wayne. 

Would the senior lien holder ever pay a junior lien that is not a mortgage lien? 

Would senior lien holder even allow me to pay off the junior lien in full and then short them on their lien?

Hey Sean. If the loan is a GSE of HUD backed, the bank will pay 10% of the junior lien and the lien holder would be required to accept it with a full debt release. Most of the time the junior linens understand this and play ball but, there is no guarantee. You just have to try.

If you pay off the 2nd lien, there is no chance that you'll get it back from the first lien out of the proceeds since the lien will be removed and the 1st lien holder will know that. 

If you pay off the 2nd, you do have the option where you can put a new lien on the home after it closes as a 2nd lien for the new homeowner as long as it applies and you have proper paperwork backing up your request for a lien.

[Rob Jacobs]

Quote from @Sean Dougherty:

Trying to wrap my head around this process.

I have a seller who has a home underwater. Selling via short sale. She is divorced an although husbands name is still in on title, she has court approved authority to sell home without his signature.

There were 2 junior liens attached to the home.

1) Child support liens of husband. We were able to successfully detach this lien from the house.

2) Lien from ex-husbands private loan ($20k).  Is there a way to detach this lien from the home as well?

Should we attempt to detach that lien before we submit an offer to lender?

Or should we submit offer to lender and let them deal with the junior lien?

 Regarding the ex-husband's issues. If the divorce decree states that the debt is entirely his alone and the house is entirely hers, there is a chance that you can do a quit claim deed removing the ex husband from the deed. 

Run this by your title attorney or title company to make sure that this would remove the lkien before doing the work though.

[Caroline Gerardo]

Your obstacles:

Ex husband will not want to receive a 1099 income tax from the short sale first lender, but he also won't like foreclosure on his credit. No matter how hostile this divorce was you need to work with him, he will need to provide his income paperwork and be notarized. The lender doesn't care about the court order, it does not supercede or override the promissory note. You may need to find the trustees of the note in addition to servicer. What was original note type? Who was mortgage insurance this gives you information about the policy the 1st has to cover them, which is how they decide if short sale is cheaper for them than foreclosure.

Does she reside in the property?

I'm surprised child support gave you a release, it must be a very small dollar amount, note the release expires and the amount grows.

Other x husband- he needs to play ball with YOU. Lender will never negotiate with him. Lender has no authorization to contact him, no reason to spend money on an attorney or paralegal to do a thing. How vengeful is that guy? Is he local? Throw him a verbal offer to pay something like $1000 my guess he will only be angry if you offer $500. Pay him ONLY at closing.

Taxes and insurance are growing and 1st lien lender has forced place insurance which is triple the cost. Any HOA dues?

Real question is  What is last payoff of first and the sales price not your BPO?