How to Deal with Multiple Liens
The short sale has always been a tricky transaction. It’s a challenge to obtain the required paperwork from the seller. It’s a challenge to find a qualified buyer who is willing to stick around until the short sale gets approved. It’s a challenge to prepare the paperwork and to get it accepted by the mortgage lender.
The challenge becomes even greater when there is more than one lien holder (more than one mortgage lender) for the property being sold in the short sale transaction.
When there is more than one mortgage loan for the property being sold short, the first lien holder (the lender who holds the first mortgage) generally offers the junior lien holder(s) a small amount of money in order to release their lien. They do this because all of the liens on the property must be reconveyed at closing in order for the sale to occur. The junior lien holder can accept the offer, but sometimes these lien holders want to hold out for more money. Thus, some real negotiating needs to occur.
Here are two tips for dealing with junior liens:
- Order and review a copy of the title report at the beginning of the transaction. Review the report with your seller, and confirm that you have information (such as mortgage statements) for each loan on the title report.
- Negotiate will all lien holders simultaneously. Some lien holders may state that they will only issue their short sale approval letter when they have received a copy of the other lender’s approval. However, you can still submit the package, receive a negotiator and begin to review the terms and conditions of the short sale with all lien holders simultaneously.
You may wonder why a junior lien holder would accept, say $3000, when the loan balance is $100,000. Well, depending upon the lien holder and depending upon your state laws, it’s possible that the lien holder may not be able to collect a penny if the property goes to foreclosure. I guess that’s what they mean when they say, “fifty percent of something is better than 100 percent of nothing.”