Short Sales with Multiple Mortgages

Facilitating short sales when there are multiple mortgages is creating some real challenges in today's market.  As the "quarterback" of the transaction, it is imperative that the listing agent have a strategic approach. 

To illustrate, let's discuss two common scenarios and start with a few assumptions.  We have two mortgages: the amount owed on the 1^st mortgage = $80,000 and the amount owed on the 2^nd mortgage = $20,000.  Broker commissions = 6% and other seller closing costs = 2% (including title policy, etc).  There are no other liens or encumbrances.  The homeowner is in default on both mortgages.  In any short sale with multiple mortgages, there is an important series of questions that the listing agent must ask in order to determine how to move forward:  1) What is the market value of the property?  2) What is owed to the 1^st?  3) What is owed to the 2^nd?  4) With a market value offer, could the 1^st be paid off in full?  5) How do I proceed with each lender?   

Scenario #1: Market Value = $90,000.  A market value offer of $90,000 and closing costs and commissions totaling $7,200 ($90,000 x 8%) would net the lenders $82,800.  Is the 1^st going to agree to a short sale?  Not likely, because there will be sufficient sales proceeds to pay the 1^st off in full, so the short sale process must be initiated with the 2^nd.  However, even though the 1^st is not likely to consider a short sale, the listing agent still must establish communication with the 1^st, to inform the 1^st that a short sale is being negotiated with the 2^nd and that the 1^st should be paid off in full, and then request postponement of any foreclosure proceedings by the 1^st.   

Scenario #2: Market Value = $70,000. A market value offer of $70,000 and closing costs and commissions totaling $5,600 ($70,000 x 8%) would net the lender $64,400.  Is the 1^st going to agree to a short sale?  Most likely, because the sales proceeds would not be sufficient to pay the 1^st off in full.  Since the 1^st is the senior lien-holder, the listing agent must start the short sale process with the 1^st.  Assuming the 1^st agrees to a short sale, the 1^st will determine the amount they will offer to the 2^nd for a "release of lien".  Once the short sale process has been initiated with the 1^st, communication must begin with the 2^nd, informing the 2^nd that given the market value of the property, the 1^st is considering a short sale.  Once the 1^st determines how much they are willing to offer the 2^nd, the 1^st may communicate directly with the 2^nd or, more often in the current market, the listing agent must facilitate this communication. 

Facilitating short sales with multiple lenders can be challenging, but having the right training and a good strategy in place will significantly increase the likelihood of a smooth and successful closing.

America's Home Rescue is leading the industry in providing the most powerful, substantive, and what many Realtors consider to be the most practical Short Sale education available in the industry.  Thousands of Realtors with other designations have chosen to enhance their education and training with this powerful program.  For more information, visit www.AmericasHomeRescue.com.  The next advanced class begins June 23rd!

Stacy Spickes is the co-founder of America's Home Rescue and the CDRS Certification Program.  To learn more, visit www.ShortSaleSolutions.biz and www.CDRSCertified.com.