Second place headaches???
I am working a short sale that has a substantial negative equity position. I am making headway with the first position, but the 2nd mortgage holder on the house is being a pain. When asked to offer a discounted payoff amount he offered to take 85 cents on the dollar. This guy will get $0 if the property goes to foreclosure and there is no way this guy cures the first only to be $50k+ upside down in his new property. Anybody have tips for dealing with 2nd place hardcases.
Eric
great question! i am glad you asked this. i have been wondering about this too.
Was your offer verbal and casual, or part of a comprehensive and compelling Proposal? An essential component to "negotiation" is the process of sharing information.
Well, this is a good question I suppose. I contacted this person casually and relayed that a substantial negative equity position exists on the property. I had not thought to him the same detailed proposal I sent to the first position holder because I was afraid to disclose too much to him. If the 2nd place guy sees what I have offered to the 1st position ($.72 on the dollar) he will see that I will have a nice equity position and he could hold me hostage for his full note. However, if a deal cannot be made with the 1st position then he will be wiped out. What should I do here???
I have the house pretty well locked up (accepted sales contract with seller and an unrecorded quit claim deed) so I am not too worried about the 2nd position holder trying to cure the first in the same manner I am.
Thanks ShortSalesPro
Eric
The second mortgagee will require an estimated HUD 1, also. Failing to disclose material information isn't conducive to longevity in this business.
Is there an appraisal that confirms the subject's value? You indicate a substantial negative equity. How did that happen?
Why do you feel that the 2nd will be, "wiped out?"
Does the Seller have any other assets?
The first mortgage isn't an FHA insured, is it?
I have no appraisal that states that there is a negative equity position but the comps bear it out. The first mortgage is $50k more than the home value. Prices here have slid about 20%. So, by my reconning, the 1st position would take everything.
The seller has no other assets and will most likely be forced to bankruptcy after this is all done.
The first mortgage is conventional, no FHA.
Lastly, what is a HUD 1? And why would I need it? In the package I sent to the 1st position workout office was an authorization to release info, a signed and accepted sales contract for the amount I would like them to settle on, some local comps, a list of estimated repairs, some photos of problems with the property and a handwritten hardship letter.
Thanks for your reply.
Eric
Comps are fine for generalities, but any lender asked to consider accepting less than they are due will order at least a BPO, and likely, if the disparity is as you indicate, an appraisal to confirm the property's as-is, fair market value.
If your application for short sale consideration advances, you'll be asked to provide a 'net sheet' or a HUD 1 which details how the proceeds from sale will be distributed.
Serious flags here. If the first mortgage is so upside down, why, on earth, would a second mortgagee agree to make a loan secured by the property. What information do they have that you don't?
It's fairly common for one lender to rely upon a less than accurate origination appraisal, but the odds that 2 different lenders will make such a material error on the same property are low.
Thanks for the HUD1, net sheet tip. I will try to get this lined up ahead of time. I assume my Title company could provide this for me.
About the flags, you are right about the odds being slim the guy granting a second on a negative equity property and about two lenders both being upside down. Two years ago this property appraised for $450k and this is when the second was placed on the house. The second was accepted in lieu of 13k worth of work done to the property. Since then (2 yrs ago) the market here has softened and then gone south 20%+, creating a negative equity position that the homeowner could not get out from under. Homes like this one are selling for 360-370 and sitting on the market a long time at that price. This home needs 10-20k worth of repairs after being vacant for 9 months.
Thanks for the tips.
Eric
If the second mortgagee is "a guy" and not a conventional, institutional lender, then you are right to pursue it less formally. Try to purchase it via an assignment. Every nickel discounted is a nickel in your pocket.
Good Luck.