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Q: We have been trying to sell our house as a short sale since we owe more than the home is worth today. We have a second mortgage and we were just told that they have the ability to reject an offer for a short sale. Is this true? We thought only the first had the right to approve a short sale offer.
A: Short answer with a long explanation. The answer to the question, as you phrased it is no, they can not reject an offer for a short sale. But they can prevent you from being able to get a short sale approved and closed.
A second mortgage holder does NOT have the power to approve or reject a short sale offer. However, because you must get their cooperation to either wipe out their lien or at least “lift the lien” for the purpose of closing, they can successfully BLOCK a short sale from moving forward by refusing to do either one of those things.
When there is an attempt to short sale a property which involves a second lien holder, there cannot be a closing unless the second receives the full amount which they are due or a lesser amount which they have agreed is sufficient for them to release the lien which they hold against the property. By releasing the lien, they would be acknowledging that they have no further claim against the home, or the borrower, in exchange for a stipulated amount. It has been commonplace for several years for second lien holders to release the lien for a tiny fraction of the amount owed when it appeared that foreclosure was imminent. This is especially true in a judicial foreclosure state where the second will receive absolutely nothing if there is a foreclosure.
In the past year it has become more common for the second lien holder to try to play hardball and agree to “lift the lien” for the closing on a short sale BUT not to release it.
That means that while it is no longer secured by the real estate it remains a collectable debt against the borrower. With such an agreement signed, the borrower has, in fact, re-obligated themselves to the debt. It is possible that such a document, acknowledging the validity of the debt, could be used to secure a judgment. With a valid judgment a lender can request a wage assignment (garnishment).
I always advise borrowers to seek legal advice when it comes to this sort of situation. An attorney might be able to negotiate for a lower amount on the unsecured debt, if, in fact, it is necessary to agree to that in order to avoid foreclosure. Foreclosure should be avoided at all costs.* Failure to use an attorney could cost you dearly down the road.
Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.
(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)
A: Short answer with a long explanation. The answer to the question, as you phrased it is no, they can not reject an offer for a short sale. But they can prevent you from being able to get a short sale approved and closed.
A second mortgage holder does NOT have the power to approve or reject a short sale offer. However, because you must get their cooperation to either wipe out their lien or at least “lift the lien” for the purpose of closing, they can successfully BLOCK a short sale from moving forward by refusing to do either one of those things.
When there is an attempt to short sale a property which involves a second lien holder, there cannot be a closing unless the second receives the full amount which they are due or a lesser amount which they have agreed is sufficient for them to release the lien which they hold against the property. By releasing the lien, they would be acknowledging that they have no further claim against the home, or the borrower, in exchange for a stipulated amount. It has been commonplace for several years for second lien holders to release the lien for a tiny fraction of the amount owed when it appeared that foreclosure was imminent. This is especially true in a judicial foreclosure state where the second will receive absolutely nothing if there is a foreclosure.
In the past year it has become more common for the second lien holder to try to play hardball and agree to “lift the lien” for the closing on a short sale BUT not to release it.
That means that while it is no longer secured by the real estate it remains a collectable debt against the borrower. With such an agreement signed, the borrower has, in fact, re-obligated themselves to the debt. It is possible that such a document, acknowledging the validity of the debt, could be used to secure a judgment. With a valid judgment a lender can request a wage assignment (garnishment).
I always advise borrowers to seek legal advice when it comes to this sort of situation. An attorney might be able to negotiate for a lower amount on the unsecured debt, if, in fact, it is necessary to agree to that in order to avoid foreclosure. Foreclosure should be avoided at all costs.* Failure to use an attorney could cost you dearly down the road.
Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.
(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)
I'm asking this question for friends. They have recently divorced and are in the final process of completing a short sale in Illinois. They have approximately $20k of a $67,500 second mortgage that will be REPAID to the second lien holder (rhymes with Bells Cargo) if the short sale is allowed. Bells Cargo is asking for 80 cents on the dollar in order to proceed with the short sale. This couple has some IRA and 401(k) assets but they do not want to pilfer their retirement savings and have to pay an additional $38,000 out of pocket for something that they won't ever see again. I'm a bystander but I would most certainly tell Bells Cargo to jump off a bridge before I'd come out of pocket for the additional $38k. My understanding is that most second lien holders get far less than the 30% that will be gleaned here. Is Bells Cargo pressuring this couple and hoping they will agree to pay back this sum because their attorney is spineless and not doing his job? Could this couple just say, "Tough - take the $20k or we will walk with a bankruptcy/foreclosure." Thanks for your insight.
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