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The first mortgage will usually say that the second mortgage can only get $1000, but after negotiations the 1st will sometimes go up a bit to say $5000.
The second mortgage will go kicking and screaming until they see that what they are offered is all they will get and most will agree.
If they go to foreclosure and the 1st is not satisfied the second will get nothing, so $1000 - $5000 is better than nothing.
This is different for every bank, though.
Where did those numbers come from? They strike me as odd, and incorrect for most circumstances. Of course, the primary can demand whatever they want, and try to force the second to accept that, but really, why would the second accept 5%? I can't believe most banks in the second position would accept that. They'd prefer to say no and hold up the deal for more. Maybe this was one example you saw, in a particular case? I've seen much more equitable distributions negotiated, where everyone got roughly the same percentage of what was owed to them.
Not in my experience and the experience of others I know that are doing short sales.
The second mortgage really does not have a leg to stand on if the value of the house drops below the total owed. If the first can be satisfied in full, then only the second has to be shorted. In that case the second would get what is left of the proceeds after the first is paid and all expenses of the sale.
In response to Bill Keegan:
My most recent short sales have been first mortgages only. But I have seen many case studies from other agents doing short sales with multiple loans in various states. The first is usually stuck on $1000 until they think the deal will not go through until they come up. And the second holds out for as much as they can get, as well.
I will check the details of a recent one done in my office where both the first and second stood firm at those numbers until literally the last moment and then gave in a bit, but it was still a low amount for the second. If I can get those details from the agent I will post the case study here.
If the ones you have seen are better, maybe they are very recent. I have been hearing all over that the banks are being more cooperative all around.
Like you are saying, it makes much more sense for the 1st and 2nd to work together to have a more equitable distribution.
You asked why the second would take only 5% or less. Because if they foreclosure goes forward to auction they are likely to get nothing.
Not in my experience and the experience of others I know that are doing short sales.
The second mortgage really does not have a leg to stand on if the value of the house drops below the total owed. If the first can be satisfied in full, then only the second has to be shorted. In that case the second would get what is left of the proceeds after the first is paid and all expenses of the sale.
Of course teh second has a leg. They can say "NO", and stop the transaction from happening at all. For 5%, I would expect most banks to say NO, let it go to forclosure. Sure, they won't get any mopre out of it that way, but it would cost the first a lot of time & money to get there. It's cheaper to simply be more equitable to the second in the short.
Of course teh second has a leg. They can say "NO", and stop the transaction from happening at all. For 5%, I would expect most banks to say NO, let it go to forclosure. Sure, they won't get any mopre out of it that way, but it would cost the first a lot of time & money to get there. It's cheaper to simply be more equitable to the second in the short.
If the second says no and the first will not raise their offer to the second, the house will go to auction and in my area, if it was a recent 80-20 loan the second will not get a dime.
You are right Bill, in saying earlier (I think that was you) that a case has to be made to the bank that they will definitely lose more money if it goes to auction as opposed to the offer on the table. We have to prove the the first that giving the second more will make more sense than the expense of going to auction.
The key for shannobanano is to get an offer and prepare a killer short sale package proving her case that this is the best offer she can get. Then keep marketing the property for back ups. See how both banks respond and go from there. Once the bank does the BPO you can get an idea of what they will accept.
It would be great if others that have some case studies would post them.
Actually shannobanano, if you haven't already... you need to get your hardship package to your bank ASAP. the bank will decide if you, personally, will qualify for a shortsale due to your hardship. If you are making the payments, everyone is employeed, etc.... they may not be as open to approving your personal short sale. Once your hardship is proven (and you should have the house listed while this is going on) THEN if you get an offer, you can submit it and that will trigger the BPO to see if the offer can be approved. and yes, we are seeing approvals IF the offer is what the bank wants to see against the BPO/appraisal.
Actually shannobanano, if you haven't already... you need to get your hardship package to your bank ASAP. the bank will decide if you, personally, will qualify for a shortsale due to your hardship. If you are making the payments, everyone is employeed, etc.... they may not be as open to approving your personal short sale. Once your hardship is proven (and you should have the house listed while this is going on) THEN if you get an offer, you can submit it and that will trigger the BPO to see if the offer can be approved. and yes, we are seeing approvals IF the offer is what the bank wants to see against the BPO/appraisal.
Shelly
We tried to work with banks already in terms of negotiating an alternative. Both denied our applications. I've been told we'll have to stop making payments before they will consider working with us. I don't think we'd qualify under any type of hardship standard. Our circimstances haven't changed. My husband bought a property (before I was in the picture) and pretty much did everything wrong imaginable. To get by, we have increased our exemptions which, of course, we can't continue forever and we're also racking up credit card debt which is the last thing on Earth I want to do. Only my husband is working because I'm a graduate student but I'm not on the mortgage anyway. Our only hardship is living with the consequences of him having bought this property.
So the bail-outs and take-overs aren't discouraging the approval of short-sales?
ofcourse they're discouraging the approval. when a company needs money it normally has to liquidate its assets as a last resort. considering that banks now have to fork out for taxes, maintenance and hoa fees, it's a no brainer. in additon these places are literally rotting away. if the fed/TREASONury didn't hand them any cash, these homes would be on the block, ABSOLUTE!!!
obviously the banks would lose and real estate prices would cave in further and bring rent prices down with them. is this a bad thing? i don't think so. for the first time in probably 20 years, americans might have a shot at REAL homeownership. this is all too much for the mccains, obamas, clintons, bernankes and paulsons of this world. they much prefer it when we're drowning in debt.
I really don't get the whole short-sale thing. I mean, fundamentally, I get the concept, but it just seems SO WRONG. For someone like Shanno above, or someone like myself who has financial hardships but don't want to ruin our credit, I guess we're scr**ed, right? So let me get this straight: I want to sell my house but probably will lose my entire 20% down payment, and may not even get enough to pay off the mortgage. Why? Because the ^%$#'ing SHORT SALES across the street have driven down the prices of the comps. So because of those short sales, my value has dropped so I may be forced to do a short-sale. Aren't the short sales, in effect, causing more short sales? Who started this whole concept? As far as I'm concerned, it sounds like an easy way for people to just walk away from their debt, yet leaves the responsible bill-paying schmoes like me completely you-know-what'ed.
It's not short sales caused the market to drop. It's the lack of demand for housing compared to the bubble years that's causing the market to slow down. Short sales are just the first indication that housing values have dropped in your area. This is typical - usually RE markets are driven by the transactions at the fringes. On the way up, it was people willing to overpay for housing. Now on the way down, it's people who must sell for one reason or another. If you don't have to sell, you can ride out the market - given that you have a decade or more to wait for prices to recover.
Short sales are normal sellers just like you. The sellers are trying to get the most they can for their house, just like you would. It's just that the market is telling them that the most they can get happens to be less than their equity in the house, again, just like you. Don't blame them, they can't cause house prices to magically return to bubble levels any more than you can.
I really don't get the whole short-sale thing. I mean, fundamentally, I get the concept, but it just seems SO WRONG. For someone like Shanno above, or someone like myself who has financial hardships but don't want to ruin our credit, I guess we're scr**ed, right? So let me get this straight: I want to sell my house but probably will lose my entire 20% down payment, and may not even get enough to pay off the mortgage. Why? Because the ^%$#'ing SHORT SALES across the street have driven down the prices of the comps. So because of those short sales, my value has dropped so I may be forced to do a short-sale. Aren't the short sales, in effect, causing more short sales? Who started this whole concept? As far as I'm concerned, it sounds like an easy way for people to just walk away from their debt, yet leaves the responsible bill-paying schmoes like me completely you-know-what'ed.
I don't think the home owners across the street from you WANT to sell short. They probably would have liked to have made a few bucks, don't you? But the MARKET (read buyers) aren't going to pay those prices. So the prices have to be reduced until the MARKET responds, thus a short sale.
shelly
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