Short-Sale A Second Mortgage – Sherman Oaks Real Estate

by Mario Acosta on August 3, 2011

in Local Topics, Market News, Sellers, Short-Sale, Various Topics

How Does a 2nd Mortgage Affect My Short Sale?

Yes, you can still do a short sale if you have a 2nd mortgage such as a Home Equity Line of Credit (HELOC) on your Sherman Oaks real estate, however it can be more difficult depending on your specific lender.  It is important to understand that HELOC loans are a completely different type of loan product, and the lender can allow you to do the short sale and release the lien on the property, but still leave the entire account open and thus you still owe the entire balance due.  HELOC loans function like a credit card but with the added feature of establishing a lien on the property.  If the lien is released from the property, it doesn’t always mean the line of credit is closed.  MANY inexperienced short sale real estate agents do not understand this difference.

In the last couple years, some short sale lenders have been selling the bad HELOC loans on the secondary “debt collection” market for a higher price (10%-20% of note value) which is much higher than the lender in the 1st position is often willing to pay (1%-3% of loan value).  Because of this, many HELOC lenders have become extremely aggressive in requiring a 10%-30% payout from borrowers for release of these loans.   Banks such as Chase, CitiMortgage, and National City have been the most aggressive so far in requiring at least a 10% payout, and many more may follow suit.  Payout requirements often vary based on the type of loan and whether or not the 1st mortgage qualifies for Fannie Mae or Freddie Mac short sale guidelines.

If the HELOC lender wants a 10%-30% payout to allow a short sale with FULL SATISFACTION, and the 1st mortgage lien holder is not willing to make that payout amount and other remedies cannot be found, it is possible that the seller could be asked to make a contribution to the HELOC lien holder by bringing money to the closing table and/or signing a promissory note under certain terms.

During a consultation with our short sale team, we will discuss your goals and likely outcome of your Sherman Oaks short sale.  You are never required to commit to anything until all the terms from the lender are fully understood.

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Post by Mario Acosta

Mario has written 117 articles.

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