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Second Mortgage Won't Accept The First's Approval

Real Estate Broker/Owner with Novak Advantage Real Estate UT DRE# 5459481-PB00


I am currently representing a Buyer client on the purchase of a Short Sale. The Seller's first mortgage is a Fannie Mae backed loan with Wells Fargo. The second is with US Bank. This is a traditional short sale, not HAFA.

Wells Fargo has issued their approval, with no Seller contribution at closing or promissory note. They have allocated 10% to the second mortgage, per their investor guidelines, and will permit no more - to the exclusion of additional funds/promissory notes from the Seller or the Buyer that those parties would be willing to bring to the closing table. US Bank has rejected these investor terms. 

Now, you're thinking, "so what's so unusual about any of this?" What's my point?

My point, a question really, relates to the listing agent's ethical responsibility given this situation (per the Realtor Code of Ethics). Since the second mortgage has rejected participation in the short sale, shouldn't the listing be removed from the MLS? Or is it acceptable to let it languish, as part of an already bloated inventory, until it dies a natural death as an expired listing?

I'm looking forward to reading your comments. Please post!


Posted by

Kim Novak is the Broker/Owner of Novak Advantage Real Estate. She can be reached by call/text/FaceTime at (801) 726-1443 and by email to kim@novakadvantage.com.



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Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I would like to know what US bank wants before your relevant question is answered....

May 06, 2011 02:53 AM
Kim Novak
Novak Advantage Real Estate - Layton, UT

$15,000 = 30% of $50,000

May 06, 2011 02:55 AM
Fritz Barnes
BizProMedia - Aberdeen, NC

I'm curious, is that 10% of the balance owed on the second?

And to what extent is the house underwater?

And did US Bank state what they would accept?

May 06, 2011 02:56 AM
Kim Novak
Novak Advantage Real Estate - Layton, UT

Hi Fritz,

The balance owed on the second is $50,000. US Bank wants $15,000 instead of $5,000.

The first with Wells Fargo is not short without the amount that they are graciously allocating to the second.

Sale scheduled for June 10th after WF postponed twice.

But what I really want to know is ...

Is it ethical to continue to have this home listed in the MLS?

May 06, 2011 08:45 AM
John Saari
Worcester, MA
"The Mortgage Buddy"

I have seen more and more of these issue popping up. Mortgage insurance issues are becoming more prevalent as well.

May 06, 2011 09:41 AM
Kim Novak
Novak Advantage Real Estate - Layton, UT

Well, this is the backlash for HAFA being inserted under HAMP. If you don't qualify for HAFA, then you're screwed on the second. 

May 07, 2011 06:15 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I am up against US Bank now and any Intel is useful thank you. As far as your question goes, it is a LU LU. You know you cant produce the approval letter which facilitates the sale...In my opinion, the client should decide whether we stay or go after it is explained...If it is a go, then I would put in agents remarks something to the effect of US Bank is negotiating hard ball...and go from there. Very good question posed by you and thank you for it...

May 07, 2011 11:01 AM
Fritz Barnes
BizProMedia - Aberdeen, NC

I'm sorry I can't comment on the Realtor Code of Ethics, given that I am not a Realtor and I have not read the Code.

But I will just throw this out there....lenders do some crazy things. You might bring them another short sale proposal in six weeks and they'll settle for 5k. Employee turnover, evolving internal policies, regulatory pressures, who knows...but things do change.

May 09, 2011 02:24 AM
Kim Novak
Novak Advantage Real Estate - Layton, UT

Thank you, Richie and Fritz. Great insight from both of you. I appreciate you taking time to read and post!

May 12, 2011 08:01 AM
Wendy Remley
Utah Prestige Real Estate - Syracuse, UT

I'm curious Kim, what ever happened with this house?

Oct 04, 2011 04:15 AM
Jim Beitz
Keller Williams Success Realty - East Layton, UT

Kim I would say yes it would be ethical to leave it on the MLS.  However - I wouldn't put the price as previously approved.  Obviously it'll take a higher offer for someone to actually close the sale, and maybe by now it's irrelevant anyway. 

That's my 2 cents though - yeah hold the listing. Mark the MLS as price requires 3rd party approval.  Now here's a question - would it be ethical to put in agents remarks the situation as you outlined?  I'd bet too US Bank would be more willing to settle if they weren't eating the  entire loss.

Jun 23, 2012 04:36 PM
Carol Faaland-Kronmaier
Weichert, Realtors; Hillsborough - Hillsborough, NJ
PhD, e-PRO, Manville, Hillsborough, Somerset NJ

Kim It's very hard to get a short sale through with a second mortgage, even if it's the same bank because there still could be different investors financing the bank loans (I lost one on the buyer's side).  And yes, PMI can ask the sellers for a note to satisfy some of the short (like the sellers had to sign to close my last short sale buy side.) Unfortunately the banks can change their mind with the next offer, so I'm not sure if the lsiting should be pulled.  I know how frustrated your buyers must be though.

Aug 05, 2012 08:59 AM
Dan Statlander

Nice post.

Aug 07, 2012 07:36 PM
Mary Hillerman
Crye-Leike Realtors® - Bentonville, AR

Hi Kim, How did it turn out? I hope you are doing well now.  If you get the time come back and let us know. 

Apr 16, 2013 11:50 PM