Lender rejects offer on 2nd mortgage payoff but refuses to counter?

Foreclosures, Short Sales, Tax Foreclosures
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It’s no wonder banks are in such a pickle. Unfortunately, I don’t believe US Bancorp is in financial straits, though they did take $6.6 Billion in TAPR funds.

I’m working a SS (not as the investor, only as the LA Realtor, with a retail buyer’s offer) and we have an offer for $. The 1st mortgage holder has already foreclosed and the sheriff’s sale is scheduled for late December. My HUD shows the 2nd allowed $2,500 for payoff, though that had not been approved by the 1st.

Now US Bank rejects the offer, for a full settlement on their $22K junior lien, yet that offer was for over 10% of what’s due. I know they don’t have to accept the offer, but why wouldn’t they at least say they would release the lien for that, but still reserve their right to a promissory note for the balance?

They rejected it verbally. I asked them to put it in writing; they refused. What’s worse, they refuse to say how much they will accept. Their response, “Well, all we can say is that the offer was rejected and we will hold the file open for 30 days. You’re welcome to resubmit an offer”. :banghead

Our US Government loans US Bancorp $6.6 Billion in TARP funds (actually, I think they made them sell the FED that much in preferred stock, but whatever) … and they don’t even have the decency to counter the offer with an amount that WOULD be acceptable?

Yet, in less than 3 months, the net on their 2nd mortage will be worth zero, zip, nada. (Though they could be entitled to a deficiency judgment, the debtor will likely take bankruptcy and they’ll get nothing). To be entitled to a judgment, however, don’t junior lien holders have to foreclose? I think they may be able to reinstate within 10 days of the auction, but don’t they have to pay off the first to do that? I wish I knew more about this. Anyone able to point me to a resource that explains more about this?).

Anyhow, how I might proceed? Should I try to get the 1st mortgage holder to just tell them they will only allow them $1,000, since the 1st is having to take a discount in excess of $10,000?

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The first will only allow up to 10 percent of their payoff paid to the second… The second doesnt have to accept a reduced payoff… Certainly it is frustrating at times which is why we are suppose to have bucket loads of shorts going at the same time.

Our policy is that if a seller or lender are not being cooperative we kick and go on.

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Hey Michael – But I’m married to this transaction and have to find a solution! I’ll keep digging, but thanks for your initial response.

A “delay of sale” has been filed (pushing the sale back 6 months from the actual date of the decree being filed), and I’m thinking that the borrower could simply recind that request, allow the property to go to auction earlier than scheduled, and the new Buyer would just deal directly with the 1st mortgage company. They would sell it auction, to themselves or the highest bidder, then turn around and sell it under the terms of the current offer, and receive the additional funds that the 2nd mortgage holder was unwilling to accept!

But just to be clear on this, if the first mortage company is going to have to settle for, say $180K on a $240K note, they would allow the 2nd to receive $18,000 at closing? And, this even though they are taking it in the shorts for $60K? Why wouldn’t they just hang onto the property, through the auction, then get the $18,000 from the Buyer that would have gone to the 2nd mortgage company?

What would be their motivation to allow that?

As for working a lot of files, I’m gaining on that, but I don’t just walk away until I’ve exhausted all possibilities of making the deal work. Maybe I’m too invested in the effort for the benefit of my clients? But that’s what I do for ALL of my RE clients. I think of it as my “fiduciary duty”.

I guess part of what I’m asking is, should I just walk away from ALL US Bank deals in the future, where they hold a junior lien?

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The bank in question holding the 2nd is entitled to a deficency judgement as far as I can tell. Given that reaction from the bank, it would seem that they evidently think that they can collect something more from that judgement.

To get this to work… your debtor may be best to bluff and actually HAVE a chapter 7 filing in hand when you make a second offer… if they reject that, it doesn’t look like your sale will move.

Also, If US Bancorp is holding a CDS instrument (eg PMI) on this, they will NOT settle the junior lien as a settlement may disallow a claim against that CDS, and the Bank may attempt to collect double… once on the deficency and again with the CDS. A PMI instrument puts the insurer “in posession” of the judgement but a CDS does not require the bank to own the underlying asset at all.

The some people literally designed a loan to “fail” in a few years that looked good bought CDS instruments cheaply, then sold the loans and kept the CDS instruments…

Its a simple scheme…

  1. Design a loan to “fail” in 3-5… “ARM” is a good candidate.
  2. Buy one or more CDS instruments on that loan.
  3. Sell the ARM loan to a sucker (Fannie/Freddie?) for par value…
  4. Wait for it to fail and collect on the CDS instrument(s).
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Thanks J.P.S. I was wondering about CDS’s - and this is a good explanation of how much more study I need to do in this arena, if I am to become a Jedi Master of SS’s! :bobble

Interesting that you mention the BK option and that this may be the only leverage that will have an impact on this lender, to bring them to a realistic settlement option. What I don’t understand is, if they have the deficiency judgment option, which I believe they do, why wouldn’t they just state that up front and save everyone a lot of time?

Can you point me to a good resource, perhaps online, that explains more of the issues on PMI, CDS, and lien laws, etc.? I realize that I have only just begun the journey and must become much better equipped, both in understanding and in negotiating skills, in the ways of a master SS negotiator.

One thing I learned yesterday is that one must always focus on the benefits that will accrue to the other party. Everyone has to feel like they are coming out a winner in some way, and I think with this 2nd mortgage holder, they aren’t quite there yet. Can’t say that I blame them yet a scenario which accomplishes a “lesser of two evils outcome” can be seen as a winning result. I just have to convince them that this is where we are.