Yes, they will send a letter to you or the homeowner saying that they will be accepting $$ whatever for release of lien. Don’t be surprised if they try to hook the homeowner/seller for the balance or some other amount. So it will be something like $1000 for release of lien (which will satisfy the short sale process with the first lender) and an additional $$?? for “full settlement.”
This means that if the other amount for “full settlement” is not sent to them by the homewoner directly or through escrow, they can stick it to the homeowner as a debt outstanding even after the disposition of the property. This is especially true for seconds that are HELOCs.
Sorry for being a bit thick here, but lets say the 2nd is $40,000 and they accept $2,000. If the deal goes through, then lender gets their two grand at closing, right? Can they then persue the seller/homeowner for a deficiency judgment at this point?
If the deal does NOT go through and the lender had accepted $2,000, is the offer then voided as the foreclosure process will wipe it out, or are they still expecting to collect the two grand?
No worries, it is a bit confusing, but not your fault. The answer to your question is it depends on the TYPE of 2nd mortgage the HO has. If it is a closed 2nd mortgage, then the lender’s loss after short sale would be wiped out with the disposition of the property - either through short sale or foreclosure.
Now, the lender for the 2nd “may” attempt to turn a closed second mortgage into an unsecured note by asking the seller to sign the release of lien and adding something like, “I understand that I will continue to be liable for the balance of $ 38K…” It is sneaky and turns that $38k into an unsecured (or recourse) loan that won’t go away even after disposition of the property.
If the second is a HELOC, then all bets are off. That is like a revolving or credit card debt than can stick with the borrower long after the property is gone. HELOC lenders can pursue deficiency if the debt is not settled, paid or excused through chapter 7.
I know, it’s a yucky situation that many homeowners face. No one thought twice about taking out HELOCs for 2nds before this credit mess.
Wow great questions and answers. I am currently neg a SS w/ a 1st and a 2nd. I’m so grateful for reiclub… :bobble and was asking the same question. Unfortunately, i can’t neg the deals because i’m an agent (as Buyer) and am working on the inside with listing agents that have SS listed for sale. So i have to “school” them on what to say to the lenders or teach them how to structure them for me since they have authorization, not me. I’m simply the Buyer (as an agent) I’ve only done one SS in feb but only had one loan. It was fantastic! Netted 37K! Anyhow the goog news is the 2nd lender on my deal is a closed 2nd. Specifically, i’d like to know what kind of verbage like a sort of script to say to the 2nd lender…
Would something like this work:
“Mr Lender my investors are offering 1ooo dollars for the release of mortgage… This is your best bet since the HO had talked about filing for BK and even if he doesn’t this loan will still get wiped out because when they foreclose on the property you’ll be out of luck regardless. I’m your best bet.”
Well, I think you really don’t need to send anything in writing to the 2nd. I kindof like to make them feel like we could care less if the property forecloses and the 2nd gets nothing. I’d have your listing agent call the 2nd and tell them that you are solid buyer that is ready to go asap as soon as the 1st gives approval. So they need to send in their release of lien as soon as possible. Tell them the ss approval from the 1st is imminent and they will likely require a 10-day close. If the 2nd holds up the close by delaying the release or trying to negotiate more than the $1000, you (the buyer) will walk and the property will go to auction - then they’ll have to settle for ZERO.
They will likely send you a letter confirming their acceptance of $1000 for the release of lien only. They’ll probably try to get more from the seller/homeowner or try to put an unsecured note in escrow for the homewoner to sign at the close. ALthough you will still have to deal with that, getting the letter for release of lien puts gets you half-way there.
Why dont you just work out a deal with you listing agents that they pay you a increased referral fee and you will do all the work? Bank might be a little fishing about it but that way you could talk to the banks yourself.