When there’s a second mortgage and the property value is less than the first mortgage balance, a second mortgage can forgo foreclosure and instead simply sue on the promissory note. This means the homeowner’s woes don’t end at foreclosure – in many cases, it’s just the beginning. I’m not trying to be a downer, but I don’t read much from short sale investors or real estate agents about negotiating with the shorting lender on the deficiency and I believe from the homeowner’s vantage point, that’s the most important aspect.
Second mortgages (or second trust deeds) don’t normally roll over and offer a full release on a short sale and in light of the above, why would they? Their goal is to claw back as much as possible on the transaction and if you’re not careful, in many cases, they will kill your short sale entirely.
Here’s an example of a successful negotiation on a second mortgage:
HSBC First Offer (lien release only – this means continued collection after the short sale)
Seller Rejects by Modifying Short Payoff
Negotiating for this type of release can take time. In the above example, it was an extra two months to save the seller some $38k and enable him to recover and get on with his life. But unfortunately, this won’t work with the normal short sale buyer. The normal short sale buyer loads all of his anxiety on the seller because he or she wants to close the short sale quickly and doesn’t understand the short sale process. This is case in point why many/most short sales don’t come together to a beautiful close. The right buyer is needed and proper negotiation (which can take time) is required. Real estate agents are great and every one of my short sales throughout the U.S.A. involves at least one real estate agent – I refuse to work without them; however, without a buyer who understands the short sale process and expert negotiation, pieces of the puzzle are missing. You can try to put those pieces of the puzzle that you have together and you can still call it a short sale, but let’s be honest, it’s not beautiful.
Short sales should be beautiful. Deficiency balances, continued collection, and judgments are short sale souvenirs that are (more times than not) the product of puzzles with malfunctioning/missing pieces. If you’re a seller, do me a favor and don’t accept anything less than perfection on your short sale transaction.
Paul Buys Short Sales
(702) 430-9390
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