I have a offer on my home for $250000 in which I owe $352800. My fisrt mortgae lender has agreed to accept

Asked by Tony Smith, California Tue Feb 12, 2008

$235000. But I have a 2nd mortgage in which I owe $140200. Any advice on where I go from here?


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Keith Sorem, Agent, Glendale, CA
Tue Feb 12, 2008
I do not know your details, after reading my post feel free to contact me for additional information if you'd rather not discuss publicly.
The short answer here is that there are some concerns that come up with home owners who find themselves in a short sale situation. In your case is the second a HELOC? (Home Equity Line of Credit)? Lenders are leary of writing off properties where home owners have taken a second and "cashed out". To the lender it appears that the owner "took" the $140,200 and is either hiding it or simply spent it.

Understandbly if they lender thinks that they are entitled to "lose less" the lenders carrying the seconds can be very uncooperative. This is compounded by the fact that if they do write it off, you are on the hook for a nice 1099 for not only the $140,200. but the foregiveness on the first mortgage. That new federal law only covers purchase money loans, not re-finance loans.

This is not a commerical, however we have found many home owners with the same circumstances and there are legal means to "cure" some of these issues. I spoke with a client over the weekend who is upside down on over twenty properties and she explained that it was only after getting an attorney was she able to get the lender to cooperate. That is all well and good, but forget the lender, worry about Uncle Sam and the IRS...which she still has to tangle with in order to save her situation.

You need a solution that will encompass three things:
1. Get your lenders to agree to let you sell short
2. Avoid the IRS tax penalities on the forgiveness
3. Get your credit dings cleaned up so you can move on.

This is just my opinion, however I think in most cases that exceeds that most Realtors can do. For further information feel free to contact me regarding your circumstances and we will try to get you the help you need.
1 vote
Christopher…, Agent, Hemet, CA
Tue Feb 12, 2008
Good luck Tony.
With any luck, the first will accept the 235 and the second will accept whats left over after expenses. Keep us posted. Always good to hear about a real-life situation and how it was resolved. Good information for agents, buyers, sellers and the community.
0 votes
Tony Smith, Home Seller, California
Tue Feb 12, 2008
The home was listed at $300K. The 1st did the apprasial and approved any offer above 235K.
In which I already have. I'm prepared to present to the second and go from there.
0 votes
Christopher…, Agent, Hemet, CA
Tue Feb 12, 2008
There is hope, I hope that you discussed the second lender with the 1st TD holder. Provide the 1st td holders info to the second and they should provide an amount to settle, go back to the 1st and provide the information about the 2nd's settlement amount and then negotiate from there. It wont be an "Easy" task but, if you are patient and persistent, you may be able to find a resolution. It is an uphill battle but, will be certainly worth a try. How much is the offer? what are comparable sales? This information will be needed as well so....keep trying!
0 votes
Christopher…, Agent, Hemet, CA
Tue Feb 12, 2008
Hello Tony,

Sounds like you are on the right track so, it's time to negotiate with the second TD.
If it is your primary residence, there is no need to worry about a tax situation as the Mortgage Relief Act of 2007 relieves you of the tax responsibility on forgiveness of debt 1099's.

Have the fist TD holder provide their acceptance in writing, provide that acceptance AND the offer to purchase along with your financial information and you should have an answer in 3-10 days. With all your ducks in a row (Sounds like they are) HSBC can be very quick with a response. There are consequences to defaulting on a HELOC so, check your documentation form the lender(s) agreeing to the short sale (Everything will be spelled out in their agreement) for additional consequences. The agreement will usually state that they are accepting partial payment as full and complete satisfaction of the debt. If in doubt, consult with a real estate attorney and tax attorney.

Good luck!
0 votes
Tony Smith, Home Seller, California
Tue Feb 12, 2008
My second was a HELOC thru HSBC. The original second was $88200 upon after the refi I only received about $49000. Is there hope?
0 votes
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