How To Short Sale With Two Mortgages or Short Sale With Two Lenders

A fellow hubber recently asked if I would be willing to write a Hub on how to do a Short Sale with two mortgages or how to do a short sale with two separate lenders. Since I work in this industry and my company currently mitigates over 400 files a month, I felt I could offer some assistance of what really goes on behind the scenes with these lenders and investors when your negotiating a Short Sale. Throughout this article I will use note and loan interchangeable but they mean the same thing. A note is one of those legal documents you signed when you purchased your home and you agreed to pay the bank or lender the entire amount owed.

What is a Short Sale

Lets begin by explaining what is a Short Sale? A short sale is where the lender accepts less than what you owe on your house. Due to the economic conditions there are many homeowners who houses are upside down. Basically, you house is worth less than what your currently owe on your mortgage. The big question arises; how am I going to sell my house? Let me offer some sound advice immediately – Do NOT foreclose on your house if at all possible. Let me repeat myself, do NOT foreclose on your house. I will explain later why and what will happen if you take this alternative.

Will my bank or lender do a Short Sale and do I have to get pre-approved before I do a Short Sale? This question is asked every single day by consumers and the simple answer is: Every bank and lender does Short Sales and you do not have to get a pre approved before negotiating, but before you begin negotiating with the lender or bank, you MUST have a purchase agreement from a buyer.  Keep in mind, absolutely nothing can begin before you have a written purchase agreement signed by all parties plus your home must be listed by a qualified Real Estate Agent before the lender will even speak with you or a third party mitigation firm.

How long does it take to negotiate a Short Sale File? Every lender has a different timeline but on average it take 90 – 120 days to mitigate a file. Some files are shorter while other large lenders can take up to six months. A huge issue that arises from about 1/3 of all short sales is that the expectations are not set for the buyers and buyers agent. This is not your typical home sale where you place a purchase agreement on a home and you move in 30 days later. If you do not set the expectations up front, I guarantee your buyer will walk because they had no idea it takes that long to mitigate a short sale. If you tell them upfront and convince them they are getting a great deal, they will stay engaged throughout the process.

Can you mitigate a Short Sale with two mortgages or two lenders? Yes you can, it may take longer and you may not see the desired results you were anticipating but it can be done. The first thing you need to do is obtain all the necessary documentation required by your first lender. Make sure you have a valid purchase agreement and explain your hardship by composing a detailed Hardship Letter.

Call your lender every couple of days to see how they are progressing with your file. You may have to stay on hold from 45 minutes to hour to obtain a person to speak with. With some of the lenders the entire process is done via an online versus calling them. If the first lender accepts the offer and agrees with the buyer’s purchase price, explain to the first lender you have a second mortgage. The second mortgage (lender) is going to want some of the money from the first lender in order to help pay off their lien.

Keep in mind, every file is unique and there are no two files that are ever mitigated the same way. Usually the second lien holder will accept between $3000 - $5000.00 from the first lender but that doesn’t mean your entire second mortgage is forgiven. You have to engage with the second lender to determine if they are willing to accept the $3000- $5000 as payment in full without any deficiency note. Please be sure you receive something in writing to whatever was agreed upon.

However, within the last 6 months the second lien holders are requesting the seller take a small note for approximately $5000 - $10,000 or sometimes for the remaining balance of the mortgage in order to satisfy the remainder of the debt owed. Every lender is different and there is no rhyme or reason how they are willing to negotiate.

In the end, if you have two outstanding mortgages from two separate lenders or two mortgages with the same lender, you will probably be asked to bring money to the table or take out a small note to satisfy the lien. Even though your mortgages are with specific lenders (Bank of America, Citi Mortgage, etc), the lenders must obtain final approval from their investors (Fannie May and Freddie Mac). These investors are the individuals requesting the notes.

I hear this statement everyday – I cannot accept this note, I have no money. If you mitigate the Short Sale correctly, can you negotiate a note that is amortized over 20 years for about $100 - $150 a month. You cannot afford NOT to take the note because your only other alternative is a Foreclosure. A Forclosure is something you do NOT want on your credit and I will explain the ramifications of a Foreclosure that most homeowners do not understand.

What happens if you refuse the note and let your house foreclose?

• You will not be able to purchase another home for 7 – 10 years.
• Your credit score is destroyed for at least 5 – 7 years.
• Your car insurance will immediately be increased because you are determined to be a high risk individual.
• Both mortgage notes (the first and second) will follow you for the rest of your life for the entire amount owed on both mortgages.
• Investors are buying up foreclosed notes and are currently going after the homeowners for the ENTIRE amount of the loan.
• Investors are receiving authority to garnish your wages, freeze your bank accounts and take your tax returns until the entire debt is paid in full.

Consumers think by walking away from their home they are free and clear from their debt but it is completely the opposite. The debt will stay with you unless you do a short sale and negotiate with you lender to satisfy your debt. Please feel free to email me with any short sale or foreclosure questions. I will be more than happy to answer any and all questions.