What happens to the second lender (80/20) when a short sale is effected?

Asked by Art, Torrance, CA Tue Sep 22, 2009

We have entered into a short sale but obiviously will not sell for our loan value - however, the first lender will be paid in full with the 2nd getting approx. 20k out of 111k owed. Will 2nd go after our credit?

nail biting in so bay

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Ruben Magana, Agent, Torrance, CA
Fri Jan 10, 2014
If the 20k You are paying to the 2nd is in writing (as an approved short sale letter) .The 2nd will now go after your credit .
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Royal Real E…, , 90275
Wed Oct 20, 2010
As a consequence of short sale, if first lender is getting paid in full and 2nd is accepting short pay, it will most likely report debt settlement and will cost you some point on your credit. However, its much better than getting foreclosed upon. After short sale, credit could be rehabilitated after 2-4 years.
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Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Wed Sep 23, 2009

As with all things regarding real estate, even payoffs to banks in short sales are negotiable. Of course, the bank knows they hold the better hand and may even try to pressure you to give up rights and remedies you have under the law. Hopefully, your Realtor has done this before and knows how to hold out on the important issues.

That being said, most lenders will not negotiate regarding credit reporting. They will report that the debt was settle for less than the full amount owed. This single item will usually cost you 50-80 points on your credit. Unfortunately, in a short sale situation, the seller's hardship will usually result in missed mortgage payments and these have a separate negative affect on your credit.

No matter what the cost to your credit for a short sale, it is usually far better to negotiate a short sale than to allow a foreclosure. If you want more information on why, feel free to contact me or go to http://www.StopMyForeclosureHelpNow.com for some great information and reports on the difference between a foreclosure and a short sale. Hope this helps and Dare to Dream.

Shel-lee Davis, CDPE
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
0 votes
Israel and R…, Agent, Hollister, CA
Tue Sep 22, 2009
Bottom line is the second will get whatever is left over from the HUD.
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Michael Magaw, Agent, Torrance, CA
Tue Sep 22, 2009
If you are in a short sale, then you are probably working with a realtor. What did your realtor say regarding your questions above?
If you are still making your payments, then your credit has not yet been affected by the short sale. If either the first or the second receives less than the full payoff, then they will usually notify the credit bureaus that you settled for less than full amount. They aren’t “going after your credit”, they are just reporting information as they have agreed to do. But it will effect your credit.
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The Medford…, Agent, Fremont, CA
Tue Sep 22, 2009

A settlement has to be negotiated with BOTH lenders. In most cases, the first usually signs off fairly quickly. We’ve found it is the second that gives us the most trouble. Hoping that won’t be true in your case, HOWEVER, we’ve done a number of these and that’s the way it usually works out. The second will want the first to make some concessions so that both usually end up hurting your credit.
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