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Two tips for negotiating a short sale with a junior lien

How to Deal with Multiple Liens

Short Sale Junior LiensThe 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:

  1. 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.
  2. 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.”

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Written By

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.



  1. Joe Manausa, MBA

    September 27, 2011 at 5:36 am

    Well said Melissa. We are seeing the second lien holders getting $2K to $5000K as a nuisance fee from the primary lien holders on most of our multi-lien short sales.

  2. Jose Dias

    September 27, 2011 at 2:31 pm

    Very useful information and tips. Thank you for sharing. In my experience it helps to keep a cool head throughout the negotiation. It is so easy to get upset with the second lien holder when they don't accept the first offer. I find that one of my key responsibilities is to help everybody involved (my seller, buyer, buyer's agent, bank negotiators) to move pass the emotional aspect of the transaction and focus on the overall objective to have a successful sale.

    Thank you for sharing.

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