The Mesquite Nevada Real Estate Blog

Mesquite Short Sales -Why Won't the Second Agree - They Get Nothing if Foreclosed

We have our share of short sale listings in Mesquite Nevada - selling your home in these tough times is difficult enough, but especially so if you are upside down on your mortgage loan.  Sometimes you may not find out whether or not the seller's lender will even consider a short payoff until you negotiate a contract with a buyer and then submit it to the lien holder.

Before you write an offer on one of the short sales in Mesquite NV - make sure your real estate agent has asked some questions of the listing agent.

A successful short sale is even more complicated if there is a second lien on the property.  Even if the 1st lien holder agrees to the short sale, the 2nd lien holder may not.  Why?

Linda Humphrey is a Real Estate Broker in Reno Nv - and gives us some answers:

Why Won't the Second Play Ball, They'll Get Nothing in a Foreclosure: 

How many times have I heard or read this comment? Wish I had a dollar....

Here is a typical sequence of events:

Act I: John Q Homeowner, having suffered a personal financial setback, stops paying his mortgages, first and second. Being a want-to-do-the-right-thing sort of guy, he approaches Rachael Realtor to list his home on the market as a short sale. Rachael works her butt off, marketing the property, arranging showings, and preparing the short sale wad-o-crap required by the lenders, complete with John's loan number neatly printed on all hundred-odd pages. After several perfectly spaced price reductions, duly noted in the file, an offer comes in. It is immediately and gratefully accepted by John, who really doesn't much care what the terms are since there is nothing in it for him except the loss of a large squawking albatross from around his neck.

Act II - The wad-o-crap, complete with the crisp, newly accepted offer, is faxed to both lenders; several times each in fact, as it seems that it was mysteriously lost in the ether the first few times (sun spots, or possibly intercepted by aliens). Several months roll by, a BPO is ordered and performed, a negotiator assigned, and finally, trumpets blare and drums roll as the first lender kindly deigns to allow the deal to proceed on these terms. Oh, and in their beneficence, they agree to allow the second lien holder to receive some single digit percentage of what they are owed.

Act III - The joyous news is conveyed to the second lien holder, who, oddly, doesn't seem thrilled at theirHut good fortune. In fact, they have the nerve to demand a larger sum. "What!!" sputters Rachael with righteous indignation. "But you will get nothing, NOTHING, if the seller allows his home to be foreclosed upon." Unmoved by her distress, the second digs in its heels. The buyers meanwhile find a nice, bank-owned home needing only double-digit thousands in deferred maintenance and with most of the appliances and fixtures intact and move on. The seller gives up in disgust and moves in with his mother, who is delighted to have someone to watch the soaps with, and the first lender forecloses.

Ok, quiz time. Did the second REALLY get "nothing"? Unlikely. There are at least three possible ways they come out ahead on this deal:

  • Unbeknownst to the homeowner, his second lien holder bought insurance against his default. They will now collect on that insurance. Depending on the terms, that may not have been possible if they agreed to a short sale.
  • The homeowner's loan with them was full recourse, and they now intend to hound him mercilessly for the deficiency and/or sell that right to a collection agency
  • The bank in question has a loss sharing arrangement with the FDIC that will allow them to collect substantially more than the pittance offered by the first under the short sale scenario.

No doubt there are others I haven't thought of. Please feel free to add them in the comments. The point is, assuming that the second will be on board with your plans because otherwise they "get nothing" may end in disappointment. And really, do you honestly believe that the people running the bank are so stupid that they don't know their bottom line under each scenario? Many times they behave in ways that seem odd to us, but that may be because they don't see any point in wasting their time explaining themselves.

___________________________________________________________________________________

Copyright © Linda S. Humphrey, all rights reserved

 

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Linda S. Humphrey, M.D., CDPE, e-PRO, EcoBroker, GREEN

Broker/Owner - Humphrey Home Connections Realty, LLC

cell: 775-287-4665

office: 775-232-8515

www.HumphreyHomeConnections.com

 

                                 Mesquite Nevada Real Estate Agent  ~ ~  ERA

Virginia Hepp
 
Virginia Hepp ~ Mesquite Realtor
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Comment balloon 5 commentsVirginia Hepp - Mesquite NV REALTOR • January 07 2011 10:43PM

Comments

Hi Virginia, great re-blog.  I missed it the first time around, glad I caught yours.  Hope you're staying warm in Mesquite, I'm sick of this cold weather!

Posted by Erika Rogers, St George Utah Real Estate & Relocation Specialist (Red Rock Real Estate ~ Southern Utah's Largest Independent Brokerage) almost 8 years ago

Virginia - It's not only that they collect insurance, but the seconds are suing under "breach of contract" law because the previous owner of the home breached the promissory note. Just because the security is no longer there (note secured by home) does not mean the indebtedness is gone. That is the key difference in our state.

Posted by Christianne O'Malley, Exceptional Service - Delivering Results in Reno! (RE/MAX Realty Affiliates) almost 8 years ago

Erika - Linda writes so well - good info for short sale sellers.  Finally warmed up here - 66 degrees yesterday!

Thanks, Christianne - are you doing your share of shortsales in the Carson City area?

Posted by Virginia Hepp - Mesquite NV REALTOR, Mesquite NV Homes and Neighborhoods - Search MLS (ERA - Mesquite NV Homes For Sale) almost 8 years ago

So, this again begs my point...why encourage a Seller to go through the months of a short sale, only to have this road block thrown up at them? I guess the moral to the story is, if you have two loans, you'll probably do better to walk than deal with this misery.

Pretty much why I am learning more about short sales, and less inclined to deal with them, either on the listing side or buyer side. It's just to hard to get everyone to home plate in the game.

MyMidtownMojo

Posted by Thom Abbott, Midtown Atlanta GA Condos For Sale (MyMidtownMojo.com |770.713.1505 | Intown Atlanta GA Condo Living) over 7 years ago

Thomas - The second lienholder is a wild card, better to prepare your sellers and let them make the decision, at the end of the day (transaction) the misery of dealing with a short sale may be worth it to the sellers.  Might be better for them than letting it go to foreclosure. 

Yes it is hard on everyone in the sale and I have complete respect for the agents who work these transactions to a finish.

Posted by Virginia Hepp - Mesquite NV REALTOR, Mesquite NV Homes and Neighborhoods - Search MLS (ERA - Mesquite NV Homes For Sale) over 7 years ago

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