Why do Short Sales take so long?
Short Sales require the Servicer/Bank to review the Homeowners financials in order to determine if the home owner has the ability to pay any or all of the debt, similar to a Buyer qualifying for a loan but in reverse.
The Servicer must also determine the value of the property and weigh that against the amount owed. They then compare what they think they would net from a foreclosure sale to the net proceeds of a Short Sale.
The amount to the Servicer is not always the determining factor. Sometimes an uncooperative Second Lien holder will cause the Sr. Lien holder to foreclose just to clear the Title.
The Lender may also have to get approval from the underlying investor; Fannie Mae or a PMI Co.
Why do Lenders foreclose?
Lenders, Servicers and Banks are corporations. These corporations are driven to make money, not to lose it. They must answer to their shareholders just like any other corporation. These corporations do not want to own property.
The only reason they foreclose is to gain control of the property or asset and recover as much of the principal loan balance, accrued interest, late fees, penalties, taxes they paid on behalf of the homeowner, court costs, and attorney fees.
In most states the laws are written so that the lender can only recover these widely accepted losses.
Negotiating a Jr. Lien /Second Mortgage takes skill and experience to become good at it. Be sure to hire an agent or broker experienced in Short Sales. When working on a short sale that has a Jr. Lien (Second, Third Mortgage, HOA Lien, Tax Lien, Bail bond, etc) The Agent should contact the Lien holder and discuss the possibility and terms of a release. *The Jr. Lien holder will be cleared from the Title in the event of a Foreclosure and may loose the ability to collect the debt anyway. Best case would be additional cost to the Lien holder to collect after the foreclosure of the property.*
Many Second Mortgage Companies will tell you they want 10% of the outstanding debt. This is a typical response. Don’t let it shake you. Ask questions:
- “Will they accept less?”
- “Is it possible to get an exception or make allowances under certain conditions?”
Explain the situation w/ your home owner, their hardship, loss of job, medical, divorce, death in the family etc. The Negotiator needs facts & figures. Once you have established an approximate amount, have the title company prepare a prelim HUD 1 with the figures or whatever you determine is appropriate as the amount for the Release of the Lien. Get the prelim HUD 1 to the FIRST Mortgage holder as well as the Second Mortgage holder immediately. Follow up with phone calls &/or emails if the negotiator provided a direct email address. You must continue to negotiate the “gap” between the first and junion lien holders until a settlement is reached. This may require several preliminary HUD1 forms and lots of back and forth calls. This is a huge opportunity for the Agent to use & improve their negotiating skills as well as your sale skills. Don’t let your agent give up just because it sounds like the bank is standing firm on their payoff demands…if you submit a new HUD1 to the bank with revised figures they have to review it with their investors and send you a response. Just talking on the phone with a front line agent is not the best way to negotiate a short sale. You should always submit a revised HUD1 estimate and corresponding documents (signed addendums, letters, etc) on each attempt otherwise your agent could be wasting their time.
Once a settlement is reached between the First Mortgage holder and all Jr. Lien Holders the Final HUD 1 should be prepared by the Title/Escrow Co or Attorney in exact accordance with the Approval/Demand Letters from each Mortgage holder & release letters from any Jr. Lien holder (HOA Lien, Tax Lien, Bail bond, etc). The Final HUD 1 should be sent to the Mortgage holders for Final Approval & signed off as “OK to close” just prior to closing.