Do NotWalk Away From A Short Sale Because It Has A 2nd Mortgage
There is always discussion regarding doing short sales that have 2nd mortgages. We have always said that properties with 2nd liens are great deals! It you understand how to approach the second mortgagor then the process should not be difficult for you. When negotiating your Short Sale, keep in mind that if the property goes into foreclosure then the 2nd lien holder will receive 0, zilch, nada, nothing!! It is your job to make sure to communicate this bit of information. We recently had a deal where the 2nd mortgage was $16,783.31. They were very anxious to close the account because of the risk of a foreclosure. Our initial offer was $1,500, all they requested was a net sheet for our offer to them and also to the first mortgage holder. That took about 30 seconds to fax, and within 10 minutes after our fax, we had an acceptance of $2,500 as Full Settlement of the loan. That is a discount of $14,283.31. The whole process took less than 15 minutes. The first mortgage holder has already given indication that they will accept our offer of $38,500 on a $54,203.54. That is a $15,703.54 discount. The house has an appraised value of $65,000.
Total discount is $15,703.54 + $14,283.31 = $29,986.85 on a $70,986.85 combined loan
Total cost to buy the property is $41,000
Total created equity $24,000
Please do not walk away from these deals! If anyone has had similar experiences please share them with us .
Your premise is absolutely correct. The junior lienholder will be more motivated to accept less that the senior mortgagees. (mortgagee = lender / mortgagor = borrower). However, your statement, "keep in mind that if the property goes into foreclosure then the 2nd lien holder will receive 0, zilch, nada, nothing!!" while sometimes may be true, is misleading to the 'freshmen' and inaccurate.
Junior mortgagees can join the Plaintiff in the foreclosure and get paid at sale, or, they themselves may bid at sale (in judicial foreclosure states). The simple act of a senior mortgage foreclosure doesn't doom the junior lienholder to zilch, nada, nothing.
The determining factor is the value of the property. If there is a cushion equity, the juniors will step up to the plate and protect their financial investment.
If the cushion of equity is marginal, or nonexistent, they'll consider accepting less.... up to a point where it makes financial sense to do so.
Simply put, if their costs to litigate and salvage their investment are recoverable via the foreclosure process, they have no real incentive to accept less than they are due.
If your Proposal falls within their acceptable Cost/Benefit criteria... they'll consider your Proposal. If not, they won't.
Their acceptance or rejection will depend upon the set of circumstances
for each application.
Mortgagees are becoming more and more sophisticated in their loss mitigation practices... sometimes subcontracting the task for certain loan portfolios to legal and/or accounting firms.
There are no absolutes in this dynamic niche practice.
Thanks Shortsalepro for bringing up what I think alot of people miss.
Subordinate debt can also participate in overages in the court registry. So again to think that subordinate debt is always left high and dry is to not completely understand the process.
I have a deal working, the 1st mortgage is 110K and the second is 27K. The only way the deal works is to get the house for the 110K and pay as little as possible on the 2nd. The only short sales I have done have only had 1 mortgage.
Can the short sale gurus tell me if I approach the 2nd with the same net sheet as I would a 1st mortgage SS? Or am I simply trying to buy the note on the 2nd for say 2500K, etc?
Any advice is muchly appreciated.
Thanks,
MemphisREI