Moorestown, New Jersey Realtor® Maria Montalbano explains the finer points of doing a short sale when there are two lien holders who need to signoff on the transaction.
“Second-mortgage holders are now beginning to require that sellers payoff a higher amount of their second liens in order to satisfy junior liens as well as release the seller from liability.
Here’s an example of how this works:
Bank of America is the first lien holder. Their approval letter states that $3000 is allowed to be paid to the junior lien holder, with any additional proceeds to be paid to Bank of America.
Chase is the second lien holder. Chase requires $8,000 to release the lien. The challenge is that Bank of America will not allow a contribution over $3,000 to Chase to appear on the HUD. The only way to resolve this is to have $5,000 wired to Chase, with Chase revising their approval letter to show $3,000 is acceptable to release the lien.
If the first lien holder only issues a generic approval with a Net requirement, then additional proceeds to the second lien holder may be allowable on the HUD.
Many times, our short sale servicer will obtain approvals from both the first and second lien holders, with the end result requiring the seller to contribute a nominal amount for the second lien holder to release the lien.
If the original buyer walks on such a transaction and a new contract is obtained, the servicer will require the seller to verify that they have the available funds to contribute (per the original approvals) before the servicer will begin negotiating the liens again for the new contract.
As negotiating and coordinating first and second liens becomes more challenging, it is becoming more important to rely on the expertise of others in order to navigate the approval process.”
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