Foreclosure in Carmichael>Question Details

Laure Olson,  in Sacramento, CA

What can you do about the second lienholder who won't approve of the settlement amount?

Asked by Laure Olson, Sacramento, CA Wed Jul 14, 2010

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Eric D Lenz’s answer
Sometimes, the second mortgage holder has "mortgage insurance" on the property that only covers them if there is a foreclosure. Therefore, THEY make out better by not negotiating and just waiting. That's a very strong negotiating position and often absolutely nothing we can do about it.
1 vote Thank Flag Link Mon Aug 8, 2011
I second Jim's answer. An attorney charges per hour so writing letters, calling the lender in loss mitigation...doesn't give a hill of beans of influence over their ultimate decision or the timing of a response.

A bankruptcy is just calling 'freeze' during the process and everything starts back up again once the bankruptcy is cleared. Sometimes what is more common is the primary lender files a 'release of lien' to have the property removed from the bankruptcy process so that they can continue with the foreclosure process anyway.

Having an attorney review the final lender approval offer letter is helpful to protect the client. Having an attorney interpret the law for their rights is important. Otherwise, they charge more and don't get any different (or better) results than a short sale specialized listing agent for negotiating the deal with or without a BK in the picture.
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1 vote Thank Flag Link Mon Jul 19, 2010
Great answers from the first the two, I would tell you the same, but thought I help with some negotiation approaches, if the settlement offer is reasonable, try asking the second lien holder if they are prepared to buy out the first. Also ask THE second lien negotiator to SIGN and send you a REJECTION letter for the amount you offered. Try not to start laughing if they act flustered as you are being serious. I have used this tactic to get the second "to wake up". Good luck.
1 vote Thank Flag Link Wed Jul 14, 2010
Sue is right (again), it depends on what is motivating the Second Lien Holder. There is no law that says they have to release the lien and allow the sale - it's usually about their bottom line. If the amount they are looking for is reasonalbe I have seen other ways to get them their money. It can come from the Buyer, the Seller, or from a reduction in the Agents commissions. It could also come from the first lienholder. To avoid any allegations of fraud make sure all parties are aware of any changes (don't forget about the Buyer's Lender - you would not want to do anything that might change there ability to qualify for a loan).
It's OK to get creative but I'd recommend a little hardball with the Second Lien Holder first. They may think they have a way of going after the Seller later - if they have lot's of assets for example. Make sure the first lienholder is aware of everything. If the Seller considers a BK after the short sale (many do to wipe out deficiency judgements and other depts) it may be worth mentioning.
I guess the bottom line is that it's the lender's decision and no one can force them to give up a lien. Time to negotiate - that's what we do! Good Luck and keep us posted!
1 vote Thank Flag Link Wed Jul 14, 2010
This is a matter of negotiation skills. If the lender really is convinced that they will lose everything and not be able to recover through recourse efforts (i.e. collections) then maybe they'll negotiate. It could be a matter of policy in that some management says get what you can now,...or it could be the negotiator who thinks they're going to be a hero and squeeze more than anyone else out of their files...

There's no magic bullet but to find what the negotiator's motivation is both personally and by policy within that lender's operation. You've just got to find a way to get that answer out of them.

In other words, you can't do anything but offer an alternative, maybe some money above the settlement from the first. But then you're in to making sure that there are no problems by the first in bringing money in....BofA has actually told me we could make a deal outside the offer with the second...surprisingly...but I have it in writing on my e-mails so I can't be accused of any fraud....

Good luck!
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1 vote Thank Flag Link Wed Jul 14, 2010
Negotiate with first lien holder to buy the note at your short sale offer, once you are in first position have the seller sign you deed in lieu of foreclosure and foreclose on the second.
0 votes Thank Flag Link Fri Nov 18, 2011
If the second lien-holder won't play ball, then another option is to short the first (which I assume you're already doing) and wrap the second, or acquire the note of the second at a discount.
0 votes Thank Flag Link Mon Jul 19, 2010
I don't see how a bankruptcy helps the buyer obtain the property. It did not in my situation. It killed the deal. Seller filed bankruptcy. Listing agent wanted nothing more to do with it, withdrew the listing, had his sellers cancel the pending sale to my buyers.

When I asked the bankruptcy trustee if he would like my buyer to make a new offer to him and the bk court the trustee said there is no point in doing that when there is no equity in the house for the second and or unsecured creditors.

Maybe Joanna Jensen can explain how a bankruptcy makes a short sale easier. It did not help for my buyers.
0 votes Thank Flag Link Mon Jul 19, 2010
Jim Walker, Real Estate Pro in Carmichael, CA
Hi Laure,
Are you working with an attorney? Sometimes just having the negotiating come from an attorney makes it easier and a bk to settle is more believable when that attorney files bankruptcy. How much underwater is the second loan? Purchase Money? Equity Loan or a Mortgage? How much are you offering.

I work for an attorney in the Bay area and we settle 2nd loans all of the time. Depends on a few things:
Is there any value to the loan?

We settle underwater second loans during short sale or during a loan mod so our cients dont have to worry about a collection call in a year. I have settled 2nd loans even when there was equity.

If you would like an attoney to help with your Loan Mods or settling your loans give me a call.
We also do short sales which I have heard some real estate companies wont represent the sellers side.

JoAnna jensen

Legal Assistant
Volo Law Group

925 699 5041
0 votes Thank Flag Link Mon Jul 19, 2010
Stephen Beede just wrote an interesting article on this in he newsletter. Go to

I have a specific situation where BofA sold their second in the middle of our approval. The new lender is not negotiating and they don't care with any threat of BK. We have no negotiating position....their attorney is making the official offers but whatever the settlement is, seems to be better than a foreclosure and a full demand on the second through their rights to recourse.
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0 votes Thank Flag Link Thu Jul 15, 2010
Negotiate it! We advise all of our sellers in this situation to hire an atty. We are Realtors and can only facilitate the sale as best we can. We however, are not licensed to negotiate with the bank. We also caution them that we can not guarantee if they will received a tax due notice on the difference or the lender may come at them later for the deficiency amount.

With that said, most real estate atty.'s will work with the seller for doing the closing and handle the parts of the negotiation that we can not. We have had a lot of success, in fact just got a negotiated approval this week.

Debbie Albert, PA
Coldwell Banker Residential
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0 votes Thank Flag Link Thu Jul 15, 2010
What can you do?

If I represent the buyer I explain in advance that that due to there being two liens on the property the chance of a reasonable offer being accepted by both lenders is on the low side. If the offer is below market value , then the chance of both lenders agreeing shrinks to "Incredible Shrinking Man" size.
0 votes Thank Flag Link Wed Jul 14, 2010
Jim Walker, Real Estate Pro in Carmichael, CA
The truth is that in some cases they think that they will make more if the property is foreclosed.

Try to counter offer, ask them "what would it take to make this work?" and also
"what will you do if this is the best offer we are going to get?"
0 votes Thank Flag Link Wed Jul 14, 2010
Keith Sorem, Real Estate Pro in Glendale, CA
Move on. We can't be the savior for everyone.
0 votes Thank Flag Link Wed Jul 14, 2010
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