Home Selling in 91367>Question Details

Jake, Home Seller in 91367

I have read on the internet that if you sell your home as a short sale and you have a 2nd mortgage, the 2nd mortgage holder can come back to you

Asked by Jake, 91367 Wed Jan 13, 2010

for the money owed them. Does that mean the 2nd only gets wiped out in a foreclosure or can it be erased in a short sale too? If that is the case and they were going to come after me for $200,000, then I would let my house go into foreclosure instead of doing a short sale.

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The quick answer is - it all depends on what is negotiated in the short sale. You should know, in a FORECLOSURE, if the 1st forecloses and the 2nd gets nothing, they can come after you for the entire loan amount plus costs, arrearages, etc, under certain circumstances.

A short sale allows you to negotiate what will happen after the short sale. In a foreclosure, you have no negotiation, you just get what the law allows.

If you are working with a strong negotiator, they will work towards negotiating that the 2nd TD accept the monies they are receiving as payment in full on the note. Sometimes this involves the seller signing an unsecured note for a portion of the debt, sometimes the buyer ponies up the difference between what the 1st is offering and what the 2nd wants, sometimes the 2nd takes the payment from 1st and does not argue. The good thing about a short sale over a foreclosure is, you control what you agree to. If you don't get what you want from the 2nd TD holder, you can always decide to allow the home to foreclose. Meanwhile, you have added months to the foreclosure process, during which time you can plan your strategy for when you no longer own the home.

My philosophy is "Foreclosure is NOT an OPTION. It is something that happens to you after you have exhausted all your options." Find a great short sale agent and get your home into the short sale process. You may be surprised with the final results. Feel free to call ne if you have any questions. Dare to Dream.

Shel-lee Davis, CDPE
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
0 votes Thank Flag Link Thu Jan 14, 2010
Jake -
There are a couple of pieces of information to check and/or look out for:

1.) If the loan was a purchase money loan then it is normally a "non-recourse" loan. They are not allowed to pursue you for repayment of any "shorted" debt. If the second lien holder was part of an 80/20 loan when you bought the home, it is most likely a non-recourse loan.

2.) If you borrowed money from a second lender after the purchase of your home, (home equity line) then this note was most likely written with a "recourse" paragraph. Stating if you default and the balance owed is not paid for through the sale of the home, they can pursue the debt. This also applies to a re-financed first and/or second loan.

3.) Both of these situations above also depend on whether or not this is your primary residence. If you rented out the home, you violated another paragraph in your original note that you planned to occupy your home. They can pursue the debt.

4.) Some lenders (whether they are senior or junior lien holder-etc) will try to add a paragraph into the approval letter that they do have the right to pursue any debt not cured through the resale. This is where it is important to have an agent that knows shorts sales and knows what to look for. I have seen some very tricky wording. Once you sign the short sale approval, you have now agreed to this new term no matter what the original situation.

5.) Also realize, recourse loans and/or non-primary resident debt relief through a short sale can also have significant tax burdens. Check with an accountant/tax preparer for advice specific to your situation.

Hope that helps.
Web Reference: http://www.TalkToCJ.com
0 votes Thank Flag Link Thu Jan 14, 2010
Hi Jake,
My understanding is that your lender -- technically known as the short sale lender in the purchase contract addendum that applies to short sales -- spells out the terms of their acceptance of your short sale in their "approval" letter, after you submit a ratified offer. I believe this applies whether the loan is a "recourse" (i.e., refinance) loan or a "non-recourse" (i.e., purchase money) loan. In other words, the terms of the short sale lender's approval can supersede the terms of the original note. But I would need to investigate further to say this with confidence. I have heard good things about http://www.naca.com if you need help. I hope everything works out for you the best it can.
0 votes Thank Flag Link Wed Jan 13, 2010
Jake, did you refinance your mortgage or is it the original (purchase money) mortgage? I believe that they cannot come after you if it was a purchase money mortgage. However, if it's possible your agent could try to get your lender to give up the right to pursue a deficiency judgment against you. As always, you can ask an attorney for any legal advice. I'm in Woodland Hills and I'd be happy to refer you to an attorney.

Sara Mehrpouyan
Rodeo Realty
0 votes Thank Flag Link Wed Jan 13, 2010
It has a lot to do with whether or not the note is written in such a way that you have a personal tie to it, and it is not only tied to your property. Some work it out by having you sign for an interest-free promissory note (I always get them negotiated down very low) so that you don't have much to pay and they promise not to come back after you. If you have a note where there is the provision that they can come after all or some of the parties who signed for it, then you will have to negotiate with them. Even bankruptcy won't necessarily protect you, nor will a foreclosure. It's very difficult to get these through right now, but at least I'm running at a 100% closure rate so far this past year with the great team I've assembled. Take a look at some of the posts on this website and you'll get a better idea of how to handle this. Also, speak with an attorney and/or your accountant to look at what is best for you in your situation. I'd be happy to help.
Bonnie Scribner, REALTOR, QSC
DRE #01447853
Cell: 714.296.0513
Century 21 Discovery
0 votes Thank Flag Link Wed Jan 13, 2010
Depends on the state and what you negotiated at the time of the short sale or foreclosure. There are recourse and non recourse states. CA is a non recourse state. Recourse states can come after the deficiency and non recourse states can not. In recourse states, you must make sure that you get in in writing that they will not come after you for the deficiency at a later date. All banks are different so find out what is in you mortgage papers.
0 votes Thank Flag Link Wed Jan 13, 2010
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