Home Buying in Los Angeles>Question Details

T-lauren, Home Buyer in Los Angeles, CA

Is it common to be asked to help pay off the seller's liens in a short sale?

Asked by T-lauren, Los Angeles, CA Wed Jul 27, 2011

There are 2 loans on the property we are trying to purchase. We have to get an approval and
"payoff" in agreement on both loans. We have been told that most of the time the first loan helps to
pay off some of the second loan. The second loan is for $90,000. The 2nd loan is
saying they will accept no less than 20% of the amount owed ($18k). The problem
lies in that the first has agreed to pay no more than $3,000 towards this lien
and wants the sellers and buyers to make up the rest ($15,000 total). Is this common? Will we lose the property if we say, "no, we don't want to contribute?" Help!

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Answers

25
Yes, you could possibly lose the property...however, have you tried having your negotiator go back to the bank with the answer of "no" ? I would do this over and over again. NO, NO, NO.. Eventually, they may come back to you with a more favorable alternative.. Have you done an appraisal on the property? Is your purchase price the same as appraisal? You don't want to pay more than what the property is worth.
1 vote Thank Flag Link Wed Aug 3, 2011
It is not uncommon for them to ask, but it is uncommon for buyers to accept especially that large of an amount. The most important thing is know what is owed up front, you should also assess what the house is worth and base your offer on these facts knowing you may be asked to pay more if there is a second. In this market there is no need to over opay unless it is the operfect house and there are no others like it.

http://www.trulia.com/blog/scott_godzyk/2010/10/so_you_want_…

Please see my blog with tips and advice on buying a short sale
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Thu Aug 4, 2011
It is not uncommon. You are basically in a negotiation. At this time, the 2nd has been able to shift the negotiation to your motivation. “Do you want the property enough of pay more than the agreed upon price.”
You may want to shift the attention to the 2nds motivation. Remember that if there is a foreclosure it is possible that the 2nd could receive nothing. In actuality, the 2nd wants more of the proceeds than the1st is willing to give. Try to shift the focus to negotiation between the two lenders.
Most importantly, you should to determine whether or not the total cost constitutes, at minimum, fair value for the home and then negotiate accordingly.
0 votes Thank Flag Link Wed Aug 3, 2011
2 things in this scenario. one - if its a Freddie Mac owned loan, the guidelines are clear that the 2nd IS not allowed to get anything else from any party in the transaction and ALL charges must be displayed on HUD and by WHOM... So first would still have to approve the extra amont to the 2nd (otherwise they could say give it to me, im in first position) And although some lenders are trying this tactic, its not right nor fair. But yes, it can happen. In that case you truly have an uncooperative 2nd. And EVEN if you say yes, 1st very well may NOT allow it. On some jumbo homes (where its a whole different world) i would say its much more common (these were different loans).... But every deal is unique and sometimes you have to be creative to get the deal done. As long as 1st allows it a choice you and seller have to make to avoid foreclosure and keep the deal together.
I had a case just like this. I escalated file direct to Freddie mac and they would not budge (the 2nd) we lost the deal. Another, i filed a complaint w/the treasury and we CLOSED the deal without a contribution and full release... there are governement agencies you can go to for assistance - but usually HAS to come from the listing agent. That 3rd party can bring some accountability. Treasury, HAMP Escalations, FDIC and Office of the Comptroller as well as FNMA help desk and Freddie Escalations are the best places to start (which is what the listing agent would have to do to try to fight these sometimes unfair practices).
0 votes Thank Flag Link Tue Aug 2, 2011
I have been involved with several Short Sales where the 2nd is requesting additional funds to release the lien.

When I have been the listing agent, I have already discussed the possibility of the 2nd lien holder not accepting the first lien holders offer. The seller's are prepared to contact the 2nd lien holder directly and determine if they can negotiate a smaller settlement. Some Seller's sign a no interest note for the addtiional sum needed to prevent the home from going into foreclosure. I also advise the Seller to contact a CPA and Attorney to seek advise before they sign any note to release the lien.

Perhaps you can suggest the Seller contact the 2nd lien holder directly to determine if they can find another solution to the problem.

The largest Buyer contribution I have been involved with was $26,00 paid to a 2nd lien holder to get the lien released. Buyer & Seller split $5,200 to make the closing happen. Seller apparently signed a note for the 2nd for their portion of the $2,600
0 votes Thank Flag Link Tue Aug 2, 2011
There is probably no harm in saying "no," or countering their request. The worst that will happen, likely, is another counter proposal. At the end of the day, evaluate the total outlay compared to the worth of the property and disregard the exact distribution of money,

Good luck!
0 votes Thank Flag Link Mon Aug 1, 2011
There is probably no harm in saying "no," or countering their request. The worst that will happen, likely, is another counter proposal. At the end of the day, evaluate the total outlay compared to the worth of the property and disregard the exact distribution of money,

Good luck!
0 votes Thank Flag Link Mon Aug 1, 2011
I think Gerard is spot on. It's time to say.................................NEXT!!
0 votes Thank Flag Link Sat Jul 30, 2011
It is not common and you need to walk away from this because the short sale doesn't even look like it is being done in a proper manner!
0 votes Thank Flag Link Sat Jul 30, 2011
Yes, that is quite typical in a short sale where more than one lien exists. The first lien has priority and knows it so, in most cases, dictates what the outcome will be. If there is not enough funds to pay off the first then the first may definitely dictate what it will allow the 2nd lienholder to receive. As the buyer, you may negotiate with the 2nd lienholder to see if it will take less (sometimes they do), or you may negotiate with the seller to see if he can pay any of it. If all else fails then move on to another property.

Jack Gillis, M.B.A., J.D.
Jack Gillis Realty Advisors
Nathan Grace Real Estate, Broker
5619 Dyer Street | Suite 100
Dallas, TX 75206
Cell: 214.718.4910
Email: Jack@JackGillisRealty.com
0 votes Thank Flag Link Sat Jul 30, 2011
When every players are trying to cut losses, it is very important to reach a consensus which is very elusive sometimes. From my experience, 1st lender agreed to pay off 2nd lien (HOA) but when the appraisal came low, 1st demanded written letter acepting lower payoff for the 2nd which it refused since it had made concessions.

There are many variables and we, agents are always on the lookout for any possible surprises like lower appraisal, differences between what the 1st will pay and the bottom payoff amount which leaves still gap that buyers, sellers, and agents can't easily close.

Daniel Choi
Nextage Capital Advisors
1521 Wilshire Blvd
Los Angeles, CA 90017
http://www.nextagecre.com
(213) 820-7509
0 votes Thank Flag Link Fri Jul 29, 2011
Yes it is getting more and more common to have the second looking for more at closing and it usually comes down to a buyer contribution. Only you with the help of your real estate professional can decide if you want to contribute. By all means your representative should be attempting to get the 2nd to reconsider or lower their demands. In the world of short sales I have seen various ways that your scenario has concluded. I have seen a second that wanted $12,000 but accepted $7000. I have seen 2nds not budge at all on their demands only to have the home be foreclosed on. Anything can happen.......good luck!
0 votes Thank Flag Link Thu Jul 28, 2011
I forgot to mention that it's also largely about the lender and the amount of inventory they're sitting on, how much pressure their investors are giving them to move inventory or how much wiggle room they will allow them.
0 votes Thank Flag Link Thu Jul 28, 2011
It's all about negotiation and motivation. Each case is unique unto itself. If it happens to be a home in Stockton or Riverside California or Las Vegas you might be able to carve just about any kind of deal you want. But if it's a home in a high demand area like coastal property or in high end upscale communities you will see a lot less wiggle room. Once again it's all about Location, Location, Location
0 votes Thank Flag Link Thu Jul 28, 2011
T-lauren-
It happens. Not long ago, I had a similar experience. The 1st conditioned the sales contract to $X amount to the 2nd which the 2nd disagreed. And besides this, the 1st one did not allow any other proceeds to be pay off outside of this sale's contract directly or indirectly even if the Buyer wanted to pay some of the 2nd.
You should not pay anything else that you're not suppose to pay, like the Seller's 2nd. The Seller's agent or listing agent must negotiate this with both 1st and 2nd. And eventually, either the 1st will cease to pay off a little more to the 2nd or the 2nd will take whatever. In general, neither the 1st or 2nd are eager to foreclose. If the 1st forecloses, 2nd would be wipe out; 2nd would get -0-, “nada.” And if the 2nd forecloses, 2nd would have to reinstate the 1st and keep up with payments and negative equity, which for sure the 2nd would not do.

Don't panic; just say no and tell your agent to pressure by negotiating; this is a learning process.

Good luck!

Doug Perez
(323) 285-8864 mess
0 votes Thank Flag Link Wed Jul 27, 2011
It can be a possibility that they will require some funds in addition to the payoff allowed from the 1st to the 2nd lender -- it's called a contribution. This would be cash brought in at escrow and would not be added to your purchase price (loan). Perhaps they can negotiate the 2nd lender payoff down from the $18,000. I've had 2nd loans on Short Sales that ask for $12,000 negotiated down to about half. Good luck.

Sara Mehrpouyan CDPE
Specializing in Short Sale & Foreclosure
Rodeo Realty
Direct: 818-903-2040
http://www.Short-Sale-Vs-Foreclosure-Help.com
Dre License #01712757
0 votes Thank Flag Link Wed Jul 27, 2011
It would be very foolish to purchase any property in LA without a realtor acting on your behalf, and especially a short sale. There will be many questions and hurdles and you need someone knowlegeable on your side. Get a good realtor today!
0 votes Thank Flag Link Wed Jul 27, 2011
You have made a very basic mistake, when Buying a house; you fell on love with it before you knew you could have it!
We have heard that approx 75% of Shortsales fail; I am sure that a SECOND accounts for the vast majority of those failures.
You have drawn your line in the sand, you know what you are willing to pay, and an extra $7500-$15000 is not acceptable!
I should add that you don't KNOW that the $18000 figure REALLY IS acceptable to the Second Lienholder: They may come back with another $5000 - $10000! (They can if nothing is in writing).
It is time to move on: Go look for another House-of-your Dreams; its out there.

Good luck and may God bless
0 votes Thank Flag Link Wed Jul 27, 2011
Hi T-lauren,
Depending on how strong a negotiator the listing agent is, they can get that offer from the second negotiated down. Second TD's may ASK for 20%, but they are TAKING $3-6000 on a regular basis. I just negotiated TWO different short sales where a $90,000 and a $100,000 second took $3000 and $6000 respectively. That is the new norm.
If I were your agent, I'd tell you not to pay anything, and send the listing agent back to the bargaining table. There are plenty of fish in the sea. You DO NOT HAVE TO CONTRIBUTE, nor should you.
Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
(D) 818.564.6591
http://www.thebremnergroup.com
Accredited Buyer Representative|Certified Distressed Property Expert |Pre-Foreclosure Specialist Certified
I want you to know that I appreciate any referrals from friends and associates who may be in the market to buy or sell real estate. You can count on me giving them the same high-quality service I provide to all of my clients.
0 votes Thank Flag Link Wed Jul 27, 2011
Hi T,
All great answers. I hope you picked up on Lori's comment. Your lender will need to be aware of it and not have a problem with it.
Good luck,
Web Reference: http://ocnorth.com
0 votes Thank Flag Link Wed Jul 27, 2011
T-lauren,

As a SFR (Short Sale & Foreclosure Resource) designated agent as well as a CDPE Certified Distressed Property Expert. I agree with my colleagues that have answered your question. What is NOT acceptable and is fraud; if the listing agent is asking your agent to tell you this money is to be paid "outside of escrow" meaning your lender does not know about this payment the listing agent is acting you to commit fraud.

Best of Success to you,




Lori Donahoo
REMAX Westside Properties
CRS, GRI designations
0 votes Thank Flag Link Wed Jul 27, 2011
I agree with Jack (and the others). Depending on how much you want the property, and how much of a deal it is, you can decide to pay what you feel comfortable with.

As others note, 10%--or in this case $9,000--is closer to what's commonly done. And the second will be wiped out if it sticks to its guns, demanding $18,000, and you (and others) aren't willing to come up with it. The question the second has to deal with is taking a sure $9,000 (or some lesser amount even), or holding out and ending up with nothing.

So if you don't want to pay $18,000, offer a lesser amount. You could lose the deal if the second says "no." It's a gamble.

Hope that helps.
0 votes Thank Flag Link Wed Jul 27, 2011
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
Contact
Yes it is very common for the second to ask for the buyer or seller to make up the difference between what the first lender is willing to pay toward the second. Typically, the second will settle for 10% of the amount owed.

Good luck,
0 votes Thank Flag Link Wed Jul 27, 2011
There is the chance you will not get the approval if someone does not contribute, however, the lender cannot force the "seller" to contribute in order to get the approval. SB458 prohibits this. Normally, you can counter back on that $18. Also, if this is a HAFA shortsale, most 2nds can only take a 3k or 6k payoff and no more. If the 2nd wants a specific amount for the approval and the 1st loan and the seller are not going to contribute, then unfortunately, it will come down to the buyer and the agents. Good luck.
0 votes Thank Flag Link Wed Jul 27, 2011
Yes, it's completely common.

The main thing you have to keep in mind is that YOU are not dealing with the bank. The seller is dealing with the bank in a debt settlement capacity. In essence, what the bank has done here is come back to the seller and said "we will not settle your account with us for less than $18,000". They don't care who pays it, whether it's you or the seller. Ultimately, it's the seller's loan. The debt is his responsibility. It has nothing to do with you.

Will you lose the property if you don't pay? Maybe. If the seller doesn't step in and pay, and the 2nd lender doesn't back down on their demand, then you have no deal. It depends on what it's worth to you. Unless you're getting a really screaming deal as it is, I probably wouldn't advise you to come in with that $18k.
0 votes Thank Flag Link Wed Jul 27, 2011
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