Negotiating Home Equity Lines During a Short Sale.

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

Jumping through hoops for youHi folks. If you negotiate Short Sales for a living then you know that a HELOC ( Home Equity Line of Credit) can be a real pain in the rear end. They usually want more money than what the 1st lien is willing to give them and they want the Borrower (Seller) to participate in their loss by making a cash contribution and/or signing a promissory note.

The Borrower needs to know this at time of listing. As a Short Sale listing agent you need to ask them at time of listing if their 2nd lien is a purchase money mortgage or is it a cash out equity line. If it was a cash out then the next question is; "Are you willing to participate in the loss?" If they answer "No" then there may be an issue. 

Now having said that, the Seller may not be in a position to participate in the loss. There could be a true financial hardship and they just don't have the means to bring cash or pay off a promissory note. If this is the case then you need to let them know that you will do your best but that there are no guarantees that the 2nd will cooperate. The 2nd may still remove the lien (mortgage) so the Short Sale can close but they will more than likely not remove the obligation for the Borrower to pay (note) without some kind of participation.

This may suck for your Seller but look at it from the lender's perspective. The Seller pulled cash out of his home and more than likely spent the money on consumer goods. The lenders know this. Should they completely forgive the debt when the borrower has a paid for Hummer sitting in the driveway? Would you? I don't think so.

So what can you do? If the Seller has the means then they should just participate in the loss. They spent the money so now give some of it back. Chances are they can settle for 20-30 cents on the dollar. That's a darn good deal. Take it and move on.

If your Seller does not have the means......Negotiate. Negotiate hard. Prove to the lender that the Borrower does not have the cash or the income to participate in the loss. Then show the lender where the "equity money" went. If it was used to pay medical bills and put food on the table then show this to the lender. It's my experience that most of the folks I help did NOT squander the money. They used it to either live on or they put it back into the property. The lender needs to know this. Lay it out and make the case.

The most important thing to remember is that it is the lender's negotiator's job to limit the loss as much as they can. They are paid negotiators and some are very good at what they do. Are you? If not then maybe you should not be handling Short Sales.

Your Sellers are depending on you. Please don't let them down. What say you?

Are you facing foreclosure in Florida?

Contact Bryant Tutas

Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.

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***I am NOT an Attorney nor do I play one on TV. Click the button below for my Bio.

The BIO for Bryant Tutas


 Tutas Towne Realty, Inc handles Florida real estate sales, Florida short sales, Florida strategic short sales, Florida pre-foreclosure sales, Florida foreclosures in Kissimmee Florida Short Sales, Davenport Florida Short Sales, Haines City Florida Short Sales, Poinciana Florida Short Sales, Solivita Florida Short Sales,  Orlando Florida Short Sales, Celebration Florida Short Sales, Windermere Florida Short Sales. Serving all of Polk, Osceola and Orange Counties Florida. Florida Short Sale Broker. Short Sale Florida.

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Barbara Altieri
RealtyQuest/Kinard Realty Group, Fairfield and New Haven County CT Real Estate - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

Bryant -- This is a great post to help those who don't know that the HELOCs can be real trouble. Just finished up on a short where the HELOC was a cash out.   The seller and I knew it would be an issue because the funds were used for the 'Hummer'.  The seller did have to sign a promissory for about a quarter of the amount.  This was a second property and the seller did have the funds.  He thought it was a great deal. Then there's another short I have in progress with a HELOC cash out, the money was spent on 'goodies' and the seller has no job and no money.  Tough times ahead.

Feb 20, 2011 09:41 AM #40
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

BB - It's important that the seller understand the distinctions that exist in a HELOC and the like results of a short sale.  You've explained it well.

Feb 20, 2011 11:39 AM #41
Joe Kenny
Realty Executive Midwest - Darien, IL
Better Than Your Average Joe

I think this is the part in the listing presentation where I whip out by laptop and show them this.  Thank you for the great tips I've read by you today.

Feb 20, 2011 12:03 PM #42
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

All so very true & it seems like some of these guys are demanding more & more these days. At least, that is what I am running into.  Always be clear with expectatiions with your sellers & negotiate as hard as you can for them.

Feb 20, 2011 12:18 PM #43
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Bryant, we had an approved short sale where the HELOC was charged off AFTER it was approved and went to another department in the bank. We had to pull out all the stops - call our Congressman and the OCC - to get them to negotiate the amount close to where it had been approved. We were able to get them to come down a couple of thousand and I think we paid the other thousand or so out of our commission, just so we could make the deal go through. This is the first time we have done that, but we didn't want to lose the deal for us or for the sellers and their hardship left them with no funds to contribute.

Feb 20, 2011 04:39 PM #44
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Great job Sharon and Frank!!! Way to git 'er done.


Thanks all for stopping by. Now be sure to educate your sellers at time of listing. That's when a successful short sale takes place.

Feb 20, 2011 10:59 PM #45
SentriLock Blogger
SentriLock, LLC - Cincinnati, OH

Bryant - I think this is great advice. I'll be tweeting/facebooking your blog out today!

Feb 21, 2011 01:41 AM #46
Phil Parisi
Better Homes & Gardens Real Estate Laviano & Associates - Jensen Beach, FL
Specializing in Florida's Treasure Coast

Bryant- you are a wealth of information, Thank You

Feb 21, 2011 02:23 AM #47
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Good post Broker Bryant.  Thanks for the reminder.  Those 2nd's can be tough.

Feb 21, 2011 09:05 AM #48
Carol Lee
Dilbeck Real Estate - Oak Park, CA
Realtor - Agoura, Oak Park, Westlake CA Homes

Bryant- nice informative post.  I especially like the last point- we need to be expert negotiators as well!

Feb 21, 2011 10:03 AM #49
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Great explanation about HELOC's. However, even if you were fortunate to remove the lien to close a SS, the lender can still pursue the HELOC and get a judgment against the seller. Sellers with substantial HELOC's should engage an attorney before entertaining a SS solution. As you know, getting all the facts and circumstances is essential before securing a SS listing.

Feb 21, 2011 10:59 AM #50
Michael Sebastian Group
Keller Williams Realty - Orange, CA

Terrific post!  As a buyer's agent, I've walked away from sellers whose agents didn't have a clue about what the 2nd was used for, or how to overcome resistance from the lienholder to release the lien.

It's not OK anymore to simply smile and show you rightly point out, today you must be a better negotiator than the ones hired by the bank.

Thanks for the great information!

Feb 21, 2011 11:45 AM #51
Kathie Burby
Coldwell Banker Mother Lode Real Estate - Sonora, CA
REALTOR, SFR, Tuolumne County Real Estate Guide

Bryant - thanks for the great information and the reminder to ALWAYS educate the seller before taking the listing.

Feb 21, 2011 12:01 PM #52
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

BB it is refreshing to read someone that actually knows their stuff when it comes to short sales. I wonder how many listings are taken in the US who have no clue about what you just wrote. How many ever have discussions like this with their clients. The answer is not many!! Pretty SAD!!

Feb 21, 2011 11:57 PM #53
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

This is some very good advice. I guess I missed this post on Saturday.

Feb 22, 2011 01:34 AM #54
Dennis & Terri Neal
RE/MAX, Big Bear - Big Bear Lake, CA
Your Home Sold in 45 Days or We Se

Thanks for the insight. I'm working on one of these right now and this will help.

Feb 22, 2011 06:50 AM #55
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

Thanks for the information. The type of second does make a difference.

Feb 27, 2011 01:31 PM #56
Paddy Deighan JD PhD - Vail, CO
Paddy Deighan J.D. Ph.D

It has been my experience as the managing attorney for a nationwide netwrok of attorneys that the 2nd lien holder is far more likely to sue on a short sale than the first lien holder.  Perhaps because they received little, if anything, on the short sale.  I ahve spoken with bank attorneys and they have not provided any answers

Feb 27, 2011 09:40 PM #57
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

I agree Paddy. Also, they are usually just releasing the lien and not forgiving the note.

Feb 27, 2011 11:24 PM #58
Matt Robinson
Professional Investors Guild - Pensacola, FL

Bryant, great post.  I have found, as I'm sure you have, that if you negotiate hard enough you can get just about any lender to give up on the contribution from the seller if the hardship is legitimate.  However, there are certainly some situations (HELOC's and MI come to mind) that are more difficult than others.  That's where it pays to have an agent with short sale experience, and not one who just went through a CDPE class.

Sep 21, 2011 04:25 AM #59
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