This is the 4th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.
It is not uncommon for homeowners and real estate professionals to consider a short sale impossible if there is more than one mortgage involved or junior liens (i.e., liens or judgments that affect the title to the property). This is not surprising for a number of reasons but is nonetheless a misconception.
As you may imagine, there are plenty of homeowners who have more than one mortgage on their properties. Perhaps they took out an equity line to pay for a child’s college or bought a property with 80/20 financing.
There are plenty of these situations and you may be in one and wonder rightfully whether or not you can successfully short sell your property on a second mortgage short sale.
The short answer is yes, yes you can.
Multiple mortgage scenarios are a bit more difficult to orchestrate. It is essentially like orchestrating two short sales for one sale. Each lender involved has its own requirements and guidelines, which require unique engagements with both.
You are likely wondering how the “pot” will be divided in these multiple lienholder situations. Basically, the first lienholder holds all the cards. In most cases, the first lienholder will allot a certain small sum to a second mortgage short sale holder – $3,000 to $6,000 on average.
The deals become harder when the second lienholder demands more than the first lienholder allows.
For example, some second lienholders demand 10% of the outstanding balance of their debt. If that debt is $120,000, then they would require a payoff of $12,000 to release their lien against the property.
This is a tough sell to the first lienholders – they of course want to get as much from the transaction as they can. It is impossible to say with any certainty how a situation like t
his will be resolved.
Sometimes, the lenders will meet each other in the middle and settle. Other times, the second lienholder will not settle and the excess funds have to come from somewhere other than the original terms of the transaction.
These are difficult deals, where the buyer or seller may have to come to the closing table with extra funds to cover the second lienholder’s demands. If you may be involved in a second mortgage short sale, you should definitely be prepared for this type of outcome.
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-Chris
