Whats happening sometimes is the 1st mortgage will ONLY allow $3000 to the second lien holder (who will usually be wiped out after the foreclosure), and now some second lien holders are demanding more like $10k. The second lien holders make the short sale impossible due to conflicting guidelines. Its unfortunate they would rather get nothing and force the home into foreclosure, than make $3000 and save a lot of money and trouble.

this sounds more like a short sale...the site below should be able to provide answers to alot of your questions.

Hi Greg,

Yes that is possible and happens quite often. From the description of your offer there are at least 2 loans with 2 different lenders. That is what is called a first and second and they dont see the offer the same way. When you submited the offer your agent should have found out if there was a second on the property and what were their terms. Ask your agent to find it out and try to see if there is anything thing that can be done.
Good luck
Leonardo

The person handling the short sale negotiation ( the listing agent I presume ) will have to overcome this. It is possible but it takes some negotiating and some more time and maybe more money.
The first cannot control the second in a short sale. They both hold liens and have no responsibility to the other. It needs to make sense to do the short to both and that's the listing agents responsibility to deal with.
If they never can agree wait til the foreclosure happens and the house becomes an REO and then try again. There will only be one bank to make decisions at that point.

Greg - It sounds as though you are not buying a foreclosure property (as then there would only be one bank as the owner) but rather you must be buying a short sale, pre-foreclosure property.

If that is the case, then that means the sellers have two loans on the property, and combined they total more than the home is worth in the current market. The sellers still own the home, but both of their lenders need to approve the sale.

Neither of the seller's lenders has to approve a short sale. Either mortgage may in fact demand a promissory note from the seller for any shortage. Each bank has its own rules as to what is acceptable in regards to approving short sales, and these rules tend to change frequently.

Short sales only work when a) both of the sellers lenders are willing to complete the short sale, and b) there is a hardship of some sort on the seller's part, as to why they cannot pay off their mortgage (such as loss of income, illness, divorce, etc.)

It is possible that the second mortgage holder will not approve the short sale unless they receive more money than they would receive with the current offer. This is where an agent's knowledge and negotiation skills come into play. However, not all lenders are cooperating.

Greg,
Without knowing your specific situation, its impossible to say. You should ask you agent to find out what the relationship is between the 2 banks, and what role each plays in the deal. He/she should be able to get that from the listing agent.