(Part 2 of 3) Will my be able to be sold on a foreclosure short sale by an agent or expert successfully?

Short sale success factor #4- Junior liens- second mortgages and judgements

One of the difficulties I run into very often is dealing with junior liens.  A junior lien takes lessor priority than a more senior lien like a first mortgage or property tax lien when it comes time to get paid out of the proceeds of a forced sale.  This means that in general they are more motivated to take what ever you offer them on a short sale rather than get nothing.  It is very typical to see a junior lien accept an offer of %10 of the original loan balance.  A major road block with junior liens however is that the first mortgage will attempt to negotiate every other fee and pay off listed on the estimated closing statement you send them. The first mortgage does this because any fee or pay off they are successful at lowering will allow them to get more of the proceeds of the sale for themselves.  Many first mortgage servicers actually have a guideline that limits the proceeds due to any junior lien to a total of $1,000.  This is usually doable if the balance for the second mortgage or judgement was less than 10,000 but if the junior lien balance was 50,000 then you are more likely to have an issue.  There are strategies for getting those second mortgage’s paid off and this is something I talk about in detail on a dvd I have created called HUD 1 Secrets.

Short sale success factor #5- Are your payments current?

This factor is very similar to factor #1 because if your payments are current your bank is going to question your hardship.  Not to mention the fact that they are still getting their money so their is no immediate motivation to work with you.  Many lenders have a rule (especially for fha loans) that requires your mortgage to be 90 days delinquent before a short sale offer will be considered. However some lenders will make exceptions to this rule if you can verify that if they don’t accept your short sale offer you will be going late in the immediate future. You would typically need to show a financial statement or budget showing negative monthly cash flow as well as copies of documents like bank statements, pay stubs, tax returns, hospital bills, divorce decrees, bankruptcy documents etc. to verify your figures.

Short sale success factor #6- How updside down are you?

This used to be more of factor than it is now.  It used to be that if I found a loan that $350,000 was owed but I knew that it could only sell for $150,000 I would walk away from working with the homeowner.  I did this because many times this was indicative of appraisal fraud in a normal market. I will cover the short sale success factor of loan fraud in my next post.  Also it was very difficult to get a lender to even consider such discount regardless of the evidance I offered for the current value.  However in our current market lenders are eager to work short sales.  Because of the way property values have dropped so dramatically in some markets lenders are used to seeing these discounts.  Also the recent government bailouts include extra incentives do short sales.

Andy Morris is a Short Sale Specialist in North Eastern Ohio

440-427-0123

http://mortgagerx.org/- My personal real estate practice.

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