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Oh Those Pesky 2nd’s

10% of the amount owed:   As we all know the land of short sales is anything but settled.  Even after three years of doing this full time there always seems to be something new coming or going…like unsecured promissory notes or confession of judgments.  Over the summer all of the investors and servicers for the 2nd mortgages must have gone to the same seminar.  2nds used to take $3,000 (begrudgingly) to release their secured interest on the property and let the property be sold in a short sale.  Now they all seem to want 10% of the amount owed to allow the short sale to go forward.  No, the argument that the 2nd won’t get anything if the property goes to foreclosure does not get you very far with the negotiator.  How many times a day do you think that they hear that argument?  The good news is that the 1st note holders are approving 10% sometimes.  If the 1st only approves the standard $3,000 then the parties need to be prepared to somehow make up the difference.

2nd noteholder strategy: It certainly seems that the 10% strategy pays off for the 2nds, even if less short sales close because of their higher requirements.  In the example below we see that asking for more money will increase their bottom line even if fewer short sales close.

10 approvals at $3,000.  If 8 actually close that will net the bank $24,000.

10 approvals at $15,000.  If 2 actually close that will net the bank $30,000.

In reality, I think that the numbers come out in favor of the bank more dramatically than this example, but you get my point.

What about releasing deficiencies:  We find that the large banks/servicers will take the 10% and release the deficiencies.  The regional and smaller banks often will approve the short sale but want extra cash from the Seller to release the deficiencies.  The required extra amount can be as much as 40% of the amount owed on the 2nd mortgage.

Submit both packages at the same time:  I also don’t recommend waiting to send in a short sale package to the 2nd until you receive the approval from the 1st.  Send them in at the same time.  Sometimes the 1st will approve ahead of the 2nd and sometimes it is the other way around.  Either way we will use the approval in hand to gently push the other to complete their review and approve the short sale.