2nd Morgage Holding Out

I am a real estate agent and an investor. I have done many short sales and have gotten great deals. I am currently working on a deal where I am strictly the re agent. I am negotiating a payoff for the amount that my seller was offered. (He received an offer before I could start the process myself, so I felt I needed to pursue this as an agent instead of an investor.) This should have been a simple short sale. The first was owed $160,000 and the second was owed $37,000. I had an offer at $173,000 and the BPO only came back at $160,000. I received an approval from the first with the stipulation that the second would only receive 10% of what is owed to them which should be $3,700, but the second is refusing to accept anything less than $7,500. I tried to convince them that this will go to foreclosure and they wouldn’t get anything and they said they didn’t care. They said they will just go after the homeowner for a deficiency judgment. Does anyone know a way to get around this or convince them otherwise?

Explain to the 2nd that $3,700 in hand now is far more valuable than $0 and a bunch of attorney’s fees only to get a piece of paper saying judgement. The difference between your offer, $3,700, and their demand for $7,500 is so small. They will spend more than this difference in attorney’s fees just trying to get a judgement.

There is a way to get around this and meet the 1st’s requirement of only 10% to the 2nd showing on the HUD, AND satisfy the 2nd…IF your buyer is willing to do it.

The fact that your BPO came in at $160k should allow you to negotiate the 1st down to a minimum of about $131,200 NET to them and get it accepted. Since your buyer is at $173k, you won’t need to got anywhere near that low.

Tell the 1st that you understand they won’t allow any more than 10% to the 2nd on the HUD. Send them a NEW offer from the same Buyer LOWERING the current NET to the 1st by the additional $3,800 being required by the 2nd lender…telling that the reason for the lowering of the net is because the buyer is willing to pay the additional funds being required by the 2nd in an out-of-closing transaction (more on that in a minute.)

Tell the 2nd that your buyer is willing to pay the additional $3,800 needed to get the deal done. Ask them to send you 2 letters. 1 letter ADDRESSED TO THE BUYER, stating that for $7,500 they will approve the short sale and release the lien on the property AND that if the closing does not occur, any funds paid outside of closing will be returned to the buyer. This letter should have wiring instructions regarding where to send the extra $3,800.

2nd letter ADDRESSED TO THE SELLER (give this one to the title company) …this is the standard Short Sale Approval letter stating that for $3,700 they will release the lien on the property, etc.

The morning before the closing, get the money from the buyer and wire it to the 2nd lender.

Now, the buyer isn’t out any EXTRA money, the 1st is happy that only 10% is on the HUD to the 2nd, the 2nd is happy because they get the whole amount, the buyer is happy because he’s not out ANY MORE money than his original contract, the seller is happy because they avoid foreclosure, the title company is happy because they can close the deal, and you are happy because the @#$ closed and you can buy the drinks!

Be careful with the title company…depending on your relationship with them. Some don’t like to know ANYTHING about ooc transactions, especially in today’s environment. There’s nothing WRONG or ILLEGAL about them, it’s just that if the money doesn’t fall on the HUD, they don’t want to know…period.

good luck!

This is an outstanding explanation, thunderd1. Thanks!