Negotiating a Short Sale with Your Lender
"Few homeowners are aware of it, but a large number of the mortgages issued today are owned by more than one lender. Often, "slices" of a mortgage are sold to different banks or investors, so any number of parties can have an interest on the home. This is what makes the short sale process complicated for many borrowers. They don't just have their main lender to deal with—the rest of the lien holders have to approve the short sale as well. To help you better plan your short sale, here's a guide to how secondary liens work and how you can deal with them.
Distribution of Proceeds
The first lender normally has the right to the entire proceeds of the short sale, minus the closing costs. In most cases, a small percentage is also used to get the second lender to agree to the short sale and let go of their lien. On average, this amounts between $1,000 and $3,000, or approximately 1 percent of the selling price. The actual amount owed to the second lender is often disregarded, as the first lender has top priority on the proceeds.
Second Lender Approval
When presented with an offer from the first lender, second lenders have the choice to either accept the amount, thus agreeing to the short sale, or reject it, allowing the first lender to proceed with the foreclosure. It's this part that often delays the short sale. The second lender may demand a higher payment or different terms, or simply take time to reach a decision. When the borrower has a second mortgage with the same bank, things are much less complicated, as negotiations are handled within the same company.
Foreclosure Costs
The costs of a foreclosure are higher than those of a short sale in most cases, both for first and second lenders. In fact, while the first lender can at least partially recover their losses in a foreclosure, second lenders can get close to nothing. So the good news for borrowers is that second lenders are often more than willing to accept a short sale, because $1,000 is better than zero. It mostly depends on what the first lender is willing to offer, which in turn depends on how much they're prepared to pay to avoid foreclosing on the home.
Short Sale Assistance
The best way to get both first and second lenders to agree is to work with a competent team, preferably an experienced short sale agent and short sale lawyer. Agents can help market the home and provide accurate market information, while a short sale attorney can negotiate more efficiently with both lenders. While there are no guarantees in a short sale, the right assistance can greatly improve your chances, no matter where your lenders stand."
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