I really need some ideas for this situation. Homeowner is facing foreclosure from the 1st mortgage. Yet, she has been paying the second mortgage and is not in default with them. How do I handle this situation. The homeowner does not mind paying the 2nd mortgage, therefore, should I ask the second mortgage to take a short pay off and then seek deficiency from the homeowner, who does not mind paying the payments. I would appreciate any ideas, Thank you in advance.
Tell homeowner to STOP paying the second. She is not accomplishing anything if she cant bring the first current.
The second TD will take absolutly nothing if the first forecloses. Why is she in default? If there is a permanent hardship, request a short sale package with the first TD. If you get a short sale approved, then contact the second TS and offer them a few hundred bucks, thats it. You can also help her by asking her to speak w/ her first TD to see if they are willing to help her in anyway…
I believe it is unethical and wrong to advise someone to stop paying the mortgage. It is saving more damage to her credit to be paying it. Stopping the payments does not really help your case for short sale on a second. Giving this type of advice really opens you up to litigation when all is said and done. Even if it is the correct action, you should never come out and say it, you should only hint at it.
THey will be influenced by the valuation and the 1sts willingness to do a short sale.
It all depends what the property is worth and what the loan balances are, which you don’t say. It is too simplistic and wrong to say that the second will receive nothing at FC so offer a few hundred bucks. They can receive significant money if the house is sold at auction for an amount in excess of the 1st mortgage.
I have done dozens of deals and have never had a second accept less than $1000.
I don’t see how it’s unethical to advise someone to stop paying the second lien. I think you should generally avoid “advising” a home owner unless they’re paying you as their attorney or advisor and you have a license to provide advice in that area of expertise. It’s too risky.
That said, why would the owner keep decent credit if they’re already in default on th 1st lien, especially if the 1st lien forecloses or does a short sale? She really needs to make a decision on a remedy because she seems to be wasting her money each month.
Bottom line is to avoid telling the owner what to do because you’re a buyer who isn’t representing her. Just explain scenarios. Real quick…Scenario #1 is that you buy/assign the house and it gets sold/rented by an investor. Scenario #2 is that the first and second lien can accept a short sale.
If the home has no equity and you can’t buy it to resell/rent, it seems like you’d need to negotiate both liens to accept a short sale, tackling the 1st lien immediately. If the home isn’t even worth the 1st lien or they won’t accept a short sale, the owner has a problem.
Thank you for both responses. The house appraises for 165,000 and the 1st is considering taking 125,000 (which is what is owed). I planned on just offering the second 2,000. Where I’m from, very few of these homes are picked up at the auction and I highly doubt that this one will. Do you guys think that the second will except this offer, and if so, will they seek deficiency from the homeowner (who doesn’t mind paying it).
I would not offer the second anything until you have an approval on the first; the first may set a limit as of how much they allow you to pay teh second, in my area the maximum is usually $1000.
p.s. About the earlier comments, I always tell my sellers as with any serious legal situation they should consult an attorney and CPA regarding points of the law and tax ramifications, and that my advise should not be used as a substitute for competent legal advise…
Good luck!
I am confused. What if the 2nd mortgage is 10,000. You would only offer them max 1000.?
It is unethical for just the reasons you cite. You have no license or standing to provide this advice and you have a conflict of interest in that you are the buyer. It is clear.
As for credit issue, damage to credit is done in degrees. Miss more payments, do more damage…miss fewer payments do less damage. Just because she is in default on one mortgage doesn’t mean you just throw the towel in on the other. Continuing to pay the second mortgage that she can afford is not a waste of money…it prevents further damage to credit and IT IS THE RIGHT THING TO DO SINCE IT IS HER LEGITIMATE OBLIGATION.