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Why Won't the Second Play Ball, They'll Get Nothing in a Foreclosure!

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Real Estate Broker/Owner with Souza Realty 916.408.5500 California DRE #01262541

This is a re-blog from Linda Humphrey, M.D. of Humphrey Home Connections Realty in Reno, Nevada. Comments have been disabled, so please visit the original blog post if you'd like to leave one! :)

Leilani

Original content by Linda Humphrey

How many times have I heard or read this comment? Wish I had a dollar....

Here is a typical sequence of events:

Act I: John Q Homeowner, having suffered a personal financial setback, stops paying his mortgages, first and second. Being a want-to-do-the-right-thing sort of guy, he approaches Rachael Realtor to list his home on the market as a short sale. Rachael works her butt off, marketing the property, arranging showings, and preparing the short sale wad-o-crap required by the lenders, complete with John's loan number neatly printed on all hundred-odd pages. After several perfectly spaced price reductions, duly noted in the file, an offer comes in. It is immediately and gratefully accepted by John, who really doesn't much care what the terms are since there is nothing in it for him except the loss of a large squawking albatross from around his neck.

Act II - The wad-o-crap, complete with the crisp, newly accepted offer, is faxed to both lenders; several times each in fact, as it seems that it was mysteriously lost in the ether the first few times (sun spots, or possibly intercepted by aliens). Several months roll by, a BPO is ordered and performed, a negotiator assigned, and finally, trumpets blare and drums roll as the first lender kindly deigns to allow the deal to proceed on these terms. Oh, and in their beneficence, they agree to allow the second lien holder to receive some single digit percentage of what they are owed.

Act III - The joyous news is conveyed to the second lien holder, who, oddly, doesn't seem thrilled at theirHut good fortune. In fact, they have the nerve to demand a larger sum. "What!!" sputters Rachael with righteous indignation. "But you will get nothing, NOTHING, if the seller allows his home to be foreclosed upon." Unmoved by her distress, the second digs in its heels. The buyers meanwhile find a nice, bank-owned home needing only double-digit thousands in deferred maintenance and with most of the appliances and fixtures intact and move on. The seller gives up in disgust and moves in with his mother, who is delighted to have someone to watch the soaps with, and the first lender forecloses.

Ok, quiz time. Did the second REALLY get "nothing"? Unlikely. There are at least three possible ways they come out ahead on this deal:

  • Unbeknownst to the homeowner, his second lien holder bought insurance against his default. They will now collect on that insurance. Depending on the terms, that may not have been possible if they agreed to a short sale.
  • The homeowner's loan with them was full recourse, and they now intend to hound him mercilessly for the deficiency and/or sell that right to a collection agency
  • The bank in question has a loss sharing arrangement with the FDIC that will allow them to collect substantially more than the pittance offered by the first under the short sale scenario.

No doubt there are others I haven't thought of. Please feel free to add them in the comments. The point is, assuming that the second will be on board with your plans because otherwise they "get nothing" may end in disappointment. And really, do you honestly believe that the people running the bank are so stupid that they don't know their bottom line under each scenario? Many times they behave in ways that seem odd to us, but that may be because they don't see any point in wasting their time explaining themselves.

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Copyright © Linda S. Humphrey, all rights reserved

 

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Linda S. Humphrey, M.D., CDPE, e-PRO, EcoBroker, GREEN

Broker/Owner - Humphrey Home Connections Realty, LLC

cell: 775-287-4665

office: 775-232-8515

www.HumphreyHomeConnections.com

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BOB & LEILANI SOUZA

Souza Realty, Bob & Leilani Souza - Real Estate Investment Specialists in Southwest Placer County, CA

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Leilani Souza - 916.408.5500 - leilani@souzarealty.com

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