Home Selling in Tempe>Question Details

Ashley Phelps,  in Tempe, AZ

i am a realtor who represents a seller on a short sale. the 1st lien holder has approved the price and

Asked by Ashley Phelps, Tempe, AZ Thu Jun 12, 2008

package. the 2nd lien holder has accepted the package with half the debt being forgiven and 1099-C given and want the seller to agree to make payments on the other $40,000 as an unsecured debt. He does not want to do this. how how will this affect him if he does not pay on this after the sale closes. Or does anyone have success negotiating the 2nd lien holder to write off all of it after a first offer like this?

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this is where you need to earn your money! NEGOTIATE!!! Treat that position from the second mortgage as a starting offer, and go back and forth between all three parties. Will the seller accept something as a debt? will the first be willing to give a bit to the second in order to get this through? Good luck!
0 votes Thank Flag Link Wed Jul 23, 2008
I recommend all my clients to speak with a lawyer and a CPA on all short sales. Verify this with the CPA, but I believe that they are no longer able to 1099 you if it was a primary residence, per the new government "bail out" rules, VERIFY THIS. I don't think they can garnish anything, as it will be unsecured debt, same as a credit card. If you filed ch 7 bankruptcy, it would be wiped clean. VERIFY THIS. Many times the first will negotiate with the second and eventually take a small cut of the final sale. This can also be done by you directly, through the assigned negotiator for the second and the first. If they won't budge, have your seller ask about the final effects of foreclosure, besides the credit issues. Good Luck because you will need it.
0 votes Thank Flag Link Thu Jun 19, 2008
It looks that you went to all the proper ways to get the short sale approved by the first lender,
Try to talk with the second lender and be "strong" negociated the best you can, move up the ladder if you need to get different results. I know some guys that do short sales, they are being very good at it, they are becoming experts, however they mentioned that if you do all you can, you are procteting your client best interest. Always ask your client to seek legal advice.
Let us know what happens? best wishes
Web Reference: http://OwnYourHomeAZ.com
0 votes Thank Flag Link Thu Jun 19, 2008
In my experience I have been told that if the HELOC was used for the purpose to improve the home, then the lender may be more forgiving. However, if the HELOC was used for other purposes such as consolidating debt or purchasing personal property, then the situation you described would be true.

There is no guarantee that the 2nd lien holder will not 1099 your client. You should be able to negotiate the 2nd lender to write off most if not all of the loan amount, depending on the 1st loan amount and market value. It the 1st lender proceeds with the trustee sale, there is a good chance that the 2nd will get wiped out anyway.

It would be best to have your client speak with their accountant and attorney regarding their financial decisions.

Good luck!
Web Reference: http://www.jameswehner.com
0 votes Thank Flag Link Thu Jun 12, 2008
You may want to contact one of the short sale specialists, or a company that specializes in them. This can be a dicey area to get involved with and it is not worth getting sued for bad advice down the road. I have a specialist in my office and she may be able to help, but I am not sure. I see listings all the time that reference the agents "working with a short sale company" and they would probably know all the ins and outs.

If you need help on an REO property I can probably help..

Good luck. Oh and always when in doubt contact your broker or manager, if they cant help, get a new broker or manager. :-)
0 votes Thank Flag Link Thu Jun 12, 2008
Ashley,

If you don't close and the seller defaults, the 2nd lien holder has the right to sue the owner to recover the entier amount owed. It doesn't mean that they will, but they do have the ability to and if they do they will win.

If he chooses the unsecured debt route and he doesn't pay after the sale closes, the bank will the option to pursue legal measures to recover the debt as with any unsecured line of credit. If they go to court they will win and most likely take a judgement against the owner and collect their money through garnishments or the like.

If the seller has the ability to stay I would recommend that they do so. If they don't, you will need to prove hardship to the bank(s). Try to get the first lien holder involved in the losses and see what they will give up. Your bargaining position is that if it goes into foreclosure they may not get everything they are owed either. In most states your seller would be able to threaten bankruptcy which would mean that a court would decide what the 2nd lien holder gets but this is a pretty drastic measure that you should be prepared to follow through with if you make the threat. That is my understanding of things. Someone else jump in here if I am off on something.
0 votes Thank Flag Link Thu Jun 12, 2008
If that 2nd is a HELOC, that is also a personal line of credit, similar to any credit card. In my experience, there isn't much that can be done, other than perhaps bankruptcy.
Web Reference: http://www.teambelt.com
0 votes Thank Flag Link Thu Jun 12, 2008
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