Homeowners ask me all the time whether it is possible to do a short sale with two mortgages, and the answer is yes.
Many homeowners have two mortgages. The second is either purchase money where the loan was used to purchase the home, or a home equity line of credit (HELOC), which was taken out later. Both loans may be with the same bank or with two different banks. In either case, a short sale still can be successfully negotiated.
Approval is needed from both banks in order to do a short sale. If the second doesn’t agree, they will not release the lien on the property. The first cannot move forward with the short sale, and will be forced into foreclosure. So, the first will offer a cash contribution to the second in return for the release of their lien. This cash contribution usually is $3,000.
There are several differences as to how we negotiate a short sale between a purchase money second and a HELOC. Here is a quick look at some of the differences:
Purchase Money Second
Why would the second agree to a short sale if they only get $3,000? Because $3,000 is better than nothing. Some banks will ask for more, and we help negotiate between the banks to meet a mutual agreement. In most cases, the second will agree to $3,000. They know if it goes to foreclosure, the proceeds of the sale will not cover the first mortgage. So, there won’t be anything left to pay the second. With a short sale, at least they get $3,000.
Home Equity Line of Credit (HELOC)
This type of loan is dealt with very differently. The most important thing to know is that doing a short sale on a HELOC is far better than going to foreclosure. A short sale is a negotiation between the homeowner and the bank (through the Realtor®). A foreclosure is a legal proceeding, and there is no negotiating. A Heloc is a recourse loan, which means that after the foreclosure, the second has the right to (and will) pursue the borrower for the full amount of the deficiency. However, in a short sale, we will negotiate with the second to come to a mutual agreement where they will accept less than the amount owed (sometimes as little as 10 percent of the loan value), and release the borrower from any further obligation for the deficiency.
Find out how a short sale can help you. Contact me today for a free confidential consultation, or visit my Web site at www.ArizonaShortSaleToday.com. You also can call my cell at (602) 571-6799, or send an e-mail to Lorraine@ArizonaShortSaleToday.com.