Pam; First are you working with an agent for your short sale, or are you doing it yourself? The second can come after you, but if it goes into foreclosure, they are going to probaly lose even more. By law the first holder must give the second some compensation. I would call the second and try to negotiate a deal with them, but also have them, if there agreeable, to give you a release before you close. You dont have to sell the home, but its better than foreclosure. If you get foreclosed on you have have to wait for five years before fannie mae will approve a loan for you. Four years if you do a deed in lieu, and only 2 years if you do a short sale. All will require 10% down, and atleast a 680 credit score.

I will also preface my comment by saying that I am not a licensed attorney and am not giving legal advice to you. It is my experience that the 2nd lienholder will try to collect the deficiency amount in either a short sale or a foreclosure unless you have it in writing that they will not. I did have one bank insist that they would not take less than the full amount owed and we negotiated with them for almost 2 weeks until they agreed to take 10% of the loan balance. From my experience you may have to file bankruptcy following the sale if you are unable to meet the terms of the bank's request and they will not back down. You would be smart to enlist the help of an experienced real estate attorney and/or a bankruptcy attorney. On a short sale that I recently closed the attorney put her fee on the settlement statement and was paid by the bank at closing (her fee was factored into the amount being forgiven). There may be someone in your area who will do the same. Short sales are difficult because all banks have different policies and those polices change often, complicating the process. I hope things work out for you.

Pam,

I will preface this by saying I am a licensed real estate professional in the state of Michigan, and also a Certified Distressed Property Expert, but NOT a legal professional. I can not, do not, and am not providing you legal advice. You must get legal advice from a legal professional.

It is a common misconception that in a foreclosure in Michigan the 2nd loan magically disappears. Not true. The truth is that the 2nd could resurface and come after you regardless. If that wasn't the case, people wouldn't even attempt short sales!

I completely endorse and practice what Missy said, that your representative should negotiate with BOTH banks to report as paid-in-full, or paid as agreed as part of the short sale terms, thus that wouldn't be an issue going forward. A proper short sale can provide guarantees ... a foreclosure gives no guarantees.

A deficiency judgement is a possibility ... make sure the short sale process is facilitated properly.

Again, seek legal advice from a legal professional.

Pam,
I dont know whether you are working with a realtor or not in this short sale, if yes then he needs to negotiate with the second to give small amount or some kind of promisory note to pay a small amount in number of years. I hope that offer is good according to the market value and you are giving something to the 2nd also from that offer price?

You need to check your state law also, if I'm not wrong then after foreclosure, you have 6-12 months redemption period also. Check with attorney's, some gives free consultation also, you can check with local realtor or local borad of realtors also about the foreclosure law and about your 2nd mortgage.

If you are selling short then yes they will, but if it is a foreclosure no.

You need to have your Realtor put it in writing and have the 5th 3rd sign off they will not come after you for any debt remaining. That has worked for me.

Now in many cases the first lien holder will offer to the 2nd lien holder some funds up to 3000. to get it to close. However, even with that you still need it in writing they will not come after you.

Read it, Read it and Read it again. Of course I would have an attorney involved and he would take care of the document preparation.

You will be 1099 from the bank.