I am looking for some help negotiating with second lien holders. I have found that more and more banks are requiring us as agents to negotiate the second lien. I've already had one denied for the $3000 the first allowed for it and I'm working on about 6 others. Any information, tips and knowledge would be most helpful!
Jennifer:
You won't get them all, but standard protocol for most lenders in second position is to refute the initial offer.
When property goes to foreclosure auction, the 1st mortgage often does not receive their full payoff: they typically lose money, especially in states where the foreclosure process takes several months and the lender can lose tens of thousands of dollars. When the 1st mortgage does not receive their full payoff, the 2nd mortgage has received nothing from the sale. The 2nd has lost all the money they were owed. In a case where there is a 2nd mortgage, they are better off getting something rather than nothing. This is why most 2nd and 3rd mortgages, as well as lien holders, will accept 10 percent of what they are owed to payoff the lien. Ten percent of something is better than nothing.
Once the 1st mortgage does their BPO, try to lock down the approval letter from the 1st mortgage immediately and have them fax it to you. Next, fax the full payoff from the 1st mortgage plus the short sale approval with the discounted payoff to the 2nd/3rd/liens.
Once the junior lien holder realizes that the 1st mortgage is taking a discount they know they are in trouble. They know that if the property goes to foreclosure auction the chance of them receiving any money is slim.
The full payoff and the discounted payoff are important. That’s the proof that the junior liens need to see to show the potential loss they will incur.
Jennifer:
You won't get them all, but standard protocol for most lenders in second position is to refute the initial offer.
When property goes to foreclosure auction, the 1st mortgage often does not receive their full payoff: they typically lose money, especially in states where the foreclosure process takes several months and the lender can lose tens of thousands of dollars. When the 1st mortgage does not receive their full payoff, the 2nd mortgage has received nothing from the sale. The 2nd has lost all the money they were owed. In a case where there is a 2nd mortgage, they are better off getting something rather than nothing. This is why most 2nd and 3rd mortgages, as well as lien holders, will accept 10 percent of what they are owed to payoff the lien. Ten percent of something is better than nothing.
Once the 1st mortgage does their BPO, try to lock down the approval letter from the 1st mortgage immediately and have them fax it to you. Next, fax the full payoff from the 1st mortgage plus the short sale approval with the discounted payoff to the 2nd/3rd/liens.
Once the junior lien holder realizes that the 1st mortgage is taking a discount they know they are in trouble. They know that if the property goes to foreclosure auction the chance of them receiving any money is slim.
The full payoff and the discounted payoff are important. That’s the proof that the junior liens need to see to show the potential loss they will incur.
I am like you Jenn. I have several short sale listings at various stages. In particular I have 3 where I have the approval of the 1st lien holder and I have faxed the aproval to the 2nd lien holders, and to my utter surprise the 2nd lien negotiators are playing hard ball and acting as though they could care less if the property went into foreclosure and they got nothing. It seems as though their position is that they would rather lose it all and get nothing that to allow the deal to go through where the Brokers make more than them. I am being told by 2nds to just come up with the additional somehow, anyhow, and anyway. They just want it and they don;t really care where it comes from. In one case, a Negotiator suggested to get the Buyer to agree to pay an additonal $5000.00 to the 2nd outside of escrow where it doesn't appear on the HUD.
The way I see it is that if the 2nds continue with their strong posturing and defiance to assist with closing the deal, then I will be forced to only deal with short sales listings that involve only one lender.
It still seems to be a nightmare out there and it doesn't seem to get any better.
I have had to deal with 2nd lien holders also and have had terrible luck. We have offered to pay them more than 10% that was owed to them and they just give me the run around and act like they don't care. I have seen one agent in my office who got a 2nd lien holder to work with her and I don't even think they got any money. I think it just depends on who the lien holder is, but it's a lot more work for you to do and you don't know til you've worked your but off if they will work with you or not. I really do not like to take short sales with 2nd liens.
I think it's better to get the second lender approval first so you know what to send to the first on the HUD1.
Some seconds are very difficult. I have some that are very cooperative and others think they should get just as much money (ratio wise) as the first lien holder. The home will have a sale date just minutes away and they still won't budge! They get nothing when it forecloses! It's so silly!
I would like to know, if anyone has had luck w/ Equity Line's. These seems to give me the most trouble since when the property forecloses, the collateral for the loan is simply lost. The debt taken out, the borrower will still owe. These equity lines are hard ones to negotiate with.
I have two 2nds that are Equity Lines of Credit with Bank of America and they want 1/2 of the balanced owed on their loans. One would be $120,000. There's no way the first will allow so much! I feel like I'm at a wall right now. Any suggestions would be awesome!
Jennifer Horton Realtor/Short Sale Coordinator
Lic:01390614
Full Service Realtor Since 2003
Trin Hong Real Estate
I have had second lien holders say "your contract is approved!" only to find out that they are not forgiving any of the debt. If you read their approval letter very carefully you may find that they are going to seek repayment from the seller after the short sale closing! Once you point this out to them and refuse, they will have to send your contract all the way back through the approval process to get the full lien forgiven.
Make sure you read your approval letters carefully...might even consult an attorney about any language you aren't sure about.
Amy- Many seconds do that! It's very frustrating. Some will never fully relieve the seller of the debt! I've had some major battles w/ 2nds. Some I conquer some never go to the finish line. It's the nature of the beast!
I fell your PAIN! However, don't disregard loans with 2nds as this is where you can get the most discount (in most - not all cases).
A couple suggestions based on the comments above which I hope will make it a little easier for some:
Don't wait for your short sale to be completed by the 1st before you submit the short sale package to the 2nd or start negotiating with them. Often when you complete the 1st, they give you 30 days to close. Not enough time to start from the beginning with the 2nd.
Don't send identical pre-lim HUD1s to each lender. Remember, these are pre-lims, not the final. I put a full 10% payoff for the 2nd on the HUD to the 1st. I will then put $1000 on the HUD to the 2nd. Neither will accept it, but we usually meet at an acceptable middle. Don't do this if you have received a payoff statement though, because then you have a definate amount from the lender.
Be on the offensive with your cover letter and initial contact with the loss mitigator for the 2nd loan regarding a deficiency or - more common now - promissory note. Don't wait for the payoff statement to dictate it without you knowing it.
Sometimes a deficiency will be triggered if the 2nd lender (or most often the investor or PMI) doesn't get enough as a payoff. Anticipate this and add this to the selling price if necessary.
Get the buyer or seller to pay, outside of closing, the difference between what the 2nd wants and what they are getting based on the selling price or 1st lenders instructions, . This can be risky for who ever is paying so you need to make sure you have everything in writing and a definate close. Here, the buyer or seller wires the difference to the 2nd. The 2nd will then send a revised payoff statement with the corrected payoff amount. We always work through our attorney on this one.
i just recently had a first approved through countrywide and then we dealt with achovia on the second and wachovia is putting the remaining debt on my seller's credit as a bank charge off where wachovia will be able to try to come after or settle the debt with my client. However, my seller' attorney's researched the settlement potential post short sale closing and they advised my seller to close because the settlement will potentially be very small (a few cents on the dollar). i guess only time will tell what they will setlle for, but it is awfully scary to close and not know what your liabilities are.
I wondered if anyone has had success with getting the 2nd lein holder paid say $5000 ($1000 from 1st lein holder and $4,000 directly from buyer but noted as a buyer's expense on HUD) I was thinking of having the buyer's attorney fee increased by $4000. This way everything appears on the HUD and everything on the up and up. Share your thoughts
Eddie & Basilio,
I've done some 2nds where the first pays what they are going to allow and the buyer pays up to $20k cash to the 2nd. It is important to structure the HUD properly so that the first doesn't come back and say they deserve that money! Because they will! It can work!
Jennifer Horton
Short Sale Coordinator/Realtor
So Jennifer - How do you structure the HUD1 for the buyer to pay off the 2nd above what the 1st allows w/o the 1st realizing it??? This would be much better for the buyer to have their money go thru escrow than the very risky payment directly to the 2nd.
John/Jennifer - I am also very interested in this approach as I am dealing with a 1st lien who will not allow a 2nd lienholder pay off of more than $x to appear on the HUD1 and the 2nd lien wants far more. My buyer is willing to pay the 2nd the difference, but we need this all to appear on the HUD1 somehow.
It has been suggested that the way to do this is to put the additional 2nd lienholder pay off as a buyers expense in the HUD1 and then mark it (p.o.c.) to indicate that it was paid outside of closing. I still don't know if this will satisfy the 1st lienholder.
Any thoughts on this? Are there any alternative ways to handle this situation?
Junior Liens when handled correctly do not need to tank a short sale transaction. Persistence is key.
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