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.
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!
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....
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.
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.
Volo Law Group
925 699 5041
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.
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
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.
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?"