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
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.
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. :-)
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.