Short sales are significantly more challenging to facilitate than traditional sales. The amount of work involved in processing short sales is exponentially higher due to the need to prepare, process and submit short sale applications and documentation as well as in the need to constantly communicate with the lender and respond to their requests for additional documentation, BPOs & Appraisals, etc. Short sales get even more problematic when junior lien holders are involved. Some junior lien holders (typically 2nd liens or HELOCs) are very easy to deal with and processing a short sale request with them is a mere formality. Lenders such as Chase, Bank of America and Ocwen are usually very easy to deal with. However, lenders such as RCS, Green Tree and PNC can be problematic. Typically, in a HAFA short sale the first lien holder will allocate up to $8,500 towards the junior lien holder in an effort to persuade the junior lien holder to agree to the short sale and release the lien. As mentioned, lenders like Chase, Bank of America and Ocwen usually agree to this amount and participate in the short sale. However, some junior lien holders want more money to agree to the short sale than the first lien holder has or is allowed to allocate. HAFA prohibits additional contributions to the junior lien holders above the maximum of $8,500. The prohibition includes contributions by the seller, the buyer or real estate agents. The bottom line is that if the junior lien holder is demanding an amount exceeding the HAFA cap, the seller will have to switch to a traditional short sale if the seller wants to consummate the short sale.
The reason that some of these junior lien holders are more difficult to negotiate with than others is that their business model is based upon buying up “worthless” junior liens from investors and enforcing (extorting) their rights when the borrower needs their approval. So, in essence, these investors buy up out of position notes for pennies on the dollar and sit on them until they are approached by the buyer for a short sale, for settlement negotiations or until the value of the house rises enough to put them into a positive situation which would allow them to potentially foreclose and recover the note amount. The reason that some of these lenders become very “stubborn” on what they want is partly because of SB 458. SB 458 is a California law that states if a junior lien holder agrees to the short sale, the lien holder loses the right to pursue a deficiency judgment. In other words, if they agree to the short sale what they agree to is all that they are going to get, period. SB 458 does not require junior lien holders to agree to a short sale, it just says that if they do, then they give up any additional rights that they might have. Once the short sale is approved the borrower’s debt is forgiven.
These “shrewder” lenders realize that by agreeing to SB 458 they will be giving up their rights and are prepared to take the risk the of the first lien holder foreclosing if they do not get a satisfactory recovery. If a Realtor cannot negotiate an acceptable contribution the junior lien holder will refuse to participate and the short sale will effectively be dead. Homeowners desiring to short sell their homes need to make sure that they retain the services of a Realtor that is capable of negotiating and handling complex short sales. Ideally, homeowners should try and locate a Realtor that is also an attorney as this will give the homeowner an added tool in the negotiations.
If you are a homeowner and you are seeking to short sale your house contact Michael Gaddis, Esq. of Michael Gaddis, J.D. Realty Group for a free consultation. Michael Gaddis is an attorney as well as real estate broker and is an expert in negotiating short sales. Michael Gaddis does not charge any differently than any other realtor. For short sales, Michael Gaddis does not charge any money from the homeowner as he is paid by the lender through the proceeds of the short sale. Michael Gaddis assists homeowners throughout the State of California.
Jenny Winford July 23rd, 2017
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