If a house is SOLD through Short Sale status, is the seller still responsible to pay for the Home Equity Loan or be included in selling price?

Asked by Jenn, 19136 Mon May 10, 2010

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13
Scott Godzyk, Agent, Manchester, NH
Mon May 10, 2010
The equity loan needs to be addressed in the short sale as there will be a lein on teh property,. if you as a buyer dont address this, it will cloud your title and you could suffer a financial loss because of it. If you are getting a mortgage a title search will be completed for you, if paying cash make sure you have one and are getting clean title with NO leins of any kind upon closing.
Web Reference:  http://www.ScottSellsNH.com
1 vote
Ruth and Per…, Agent, Los Gatos, CA
Mon May 10, 2010
Hi Jenn:

Check my blog out, the 2MP program called out should help you and give some guidance.

Best regards
Perry
0 votes
Renee Porsia, Agent, Newtown, PA
Mon May 10, 2010
Terrence,

There is something wrong with your e-mail. Sent you two emails and they came back.

Renee Porsia
Associate Broker
RE/MAX ACTION
(215) 669-0589 Direct
(215) 358-1100 Office Ask for Renee
http://www.reneeporsia.com
0 votes
, ,
Mon May 10, 2010
Sorry,
I meant that for Renee not Jenn.
I am not here to argue with others but if I see something that I believe is incorrect I will say so.
Have a great day
Alan
0 votes
, ,
Mon May 10, 2010
Jenn,

please re- read your answer. "When a bank agrees to do a short sale, the bank who holds the mortgage will receive all proceeds and probably won't want to pay off any secondary lien holder."

The secondary lien holder is also someone who is part of the short sale and someone who holds a mortgage
Your answer technically makes no sense.

Your assumtion that the secondary lien hollder will get nothing assumes that the property will go into foreclosure. That is a big assumption as not all failed short sales end in foreclosure, I thought your answer was very misleading and I stand by what I said.

Regards,


Alan Openshaw
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Mon May 10, 2010
Good morning Jenn:

A seller and his / her agent work with both the Principal Lender and the Home equity lender
and negotiate the terms once an offer is recd.

A listing agent should tell both the banks that the Seller is doing a Short Sale, and there is a Short Sale
package that a Seller needs to fill out showing Financial Hardship, from both banks.

A Home Equity lender generally settles for somewhere betweeen 0.05c to 0.15c on the dollar.
Hence, if they are owed $100K, they generally get either $5k to $15k, from the proceeds.

You should only price the home based on what the market can bear working with and agent or a lawyer
who has short sale experience. the process with take somewhere between 90 days to 180 days.


Goodluck.
Perry
Web Reference:  http://www.ruthandperry.com
0 votes
Renee Porsia, Agent, Newtown, PA
Mon May 10, 2010
Alan, that is not true! I didn't say that the person could sell the home if the second lien holder held a lien. What I said was that in most cases, the second lien holder will usually accept whatever the first lien holder wants to give them rather than risk getting nothing.

I do short sales all the time and can always get the parties to agree. And yes, it does matter if the Realtor knows what they are doing or not.

Jenn if the bank doesn't want to pay off any other lien holder than the home will go into foreclosure which is why so many owners would rather partake in a short sale. Everybody usually wins in a short sale situation.

Renee Porsia
Associate Broker
RE/MAX ACTION
(215) 669-0589 Direct
(215) 358-1100 Office Ask for Renee
http://www.reneeporsia.com
0 votes
Terrence Cha…, Home Owner, Allentown, PA
Mon May 10, 2010
Correction. The banks can forgive the balance of the loans...
0 votes
Terrence Cha…, Home Owner, Allentown, PA
Mon May 10, 2010
Jenn,

To add my two cents, banks can also forgive the loans if they so choose. However, when this happens, the borrower will get a 1099 by the end of January the following year so that the borrower must then report the forgiven funds as income and pay the taxes from it.

For example, let's say that you the forgiven amount was $50,000 and you were given a 1099 for it. This would mean that you would need to pay, depending on the tax bracket your in, up to and perhaps over $10K in taxes. And remember, all levels would need paid. Federal, State and local.

Terrence Charest
0 votes
, ,
Mon May 10, 2010
The second mortgagee holds a lien on the property. The Realtor, whether they know what they are doing or not, cannot sell the house without the approval of the second mortgagee. What Renee is saying is not entirely true. The first mortgagee will only get all of the money if the property is foreclosed on and their is no funds left to pay the second mortgagee. A short sale cannot occur until all parties are in agreement.

Alan Openshaw
Cornerstone Lending Inc
215 674 9059
0 votes
Dp2, , Virginia
Mon May 10, 2010
The short asnwer is: it depends.

A more detailed answer is: this is one of the various sets of terms that the seller has to negotiate. Assuming a seller has a mortgage and HELOC on a home that s/he needs/wishes to sell via a short sale, then s/he essentially will enter into 2 separate short-sale negotiations: 1 with the 1st-lien (or mortgage) holder, and 1 with the 2nd-lien (or HELOC) holder. Any seller who needs/wishes to sell via a short-sale should work with an experienced short-sale negotiator--especially if that seller doesn't have any short-sale experience. Some 2nd-lien holders will cave, and others would rather foreclose their interests (provided they can work something out with the 1st-lien holder [who also could foreclose their interests]).

The only thing worse than both the 1st and 2nd lien holders foreclosing their interests is for that seller to also file for bankruptcy on top of all of that.

Another option to doing a short-sale is to sell with seller financing.
0 votes
, ,
Mon May 10, 2010
Hello Jenn,

the first and second mortgagee and the seller have to come to an agreement as to how the funds are to be disbursed. The second mortgagee can request that ther seller hold a note for the second but the seller can refuse. The seller is as much a part of the agreement as anyone else. Each situation is differenty but I would not take responsibility for any note in this market.

Alan Openshaw
Cornerstone Lending Inc
215 674 9059
0 votes
Renee Porsia, Agent, Newtown, PA
Mon May 10, 2010
Hello Jenn,

When a bank agrees to do a short sale, the bank who holds the mortgage will receive all proceeds and probably won't want to pay off any secondary lien holder but more often than not if the Realtor knows what they are doing, they can get the bank to agree to give the other lien holder something, even if it's just a thousand dollars. The other lien holder can choose to take what they are offered or risk getting nothing.

There is also something called a deficiency judgment. What that means is that after the short sale there is not enough to pay off the bank, the bank will ask the home owner to sign something stating that the home owner will be responsible to pay back the remaining balance over a period of time.

Are you involved in a short sale now or feel that you might want to go one?

Renee Porsia
Associate Broker
RE/MAX ACTION
(215) 669-0589 Direct
(215) 358-1100 Office Ask for Renee
http://www.reneeporsia.com
0 votes
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