Posts Tagged ‘satisfy the loan’

Question: I built a home in New York two and a half years ago for my daughter to live in. The mortgage and title is in my name only for a current balance of $147,000.00. My wife and I live in South Carolina. Our condo here is on the edge. We could probably sell it for what is owed. We also have a boat that probably has $30,000.00 in equity. Add in a Money Market Account with $35,000.00 and $60,000.00 in what were 401K’s but are now rolled into simple IRA’s. Credit card debt is about $10,000.00 Cars are bought and paid for. My daughter has not been able to make the mortgage payments for the last eight months. I have been making them, along with all of my own payments. It has come to the point where I am going to have to let the bank have the house back. I have about $50,000.00 wrapped up in the house, but when the bottom dropped out in rural upstate NY, it really dropped out, and I could not sell the house at this time.  If I let the house go into foreclosure, can they touch any of my other assets. My wife is co-signitor on the condo and boat, but again, not on the NY house. I have excellent credit, but I’m at the age where I seriously doubt that I will be making any major purchases any time soon.

Answer: -Can they come after your assets? No.  Because when you signed the paperwork, the bank agreed to loan you the money and used the house as collateral.  However, if you ultimately go through foreclosure, the bank has the right to file a judgment against you for the amount they lost.  So you are expected to pay the difference or in most cases people will file bankruptcy to eliminate the judgment.  By doing so would require you to sell some or all your assets.  So the best option is to work out a pay off or settlement with the bank for a fraction of what you owe on the loan.  This is called a short sale.  By having the bank approve a short sale and asking them to satisfy the loan, they give up their right to file a judgment.  You’ll also able to avoid foreclosure and possible bankruptcy.  Again the key here is to get them to “satisfy the loan”.  By doing a short sale, you’re also giving the buyer a good deal on a home that is upside down.  Now if you are successful in getting a short sale approved, more than likely they will just 1099 you for the difference.  But that’s a lot better than a judgment.  And there is a chance they won’t 1099 you either.

Question: If the first lien holder is foreclosing and there is a second lien holder who does not have a “notice of sale” clause and therefore is unaware of proceedings, you advise there is no reason to reveal the second in my hud statement when attempting to short sale the first. However, since I am buying the property pre-foreclosure, I believe the second lien will still have rights which means I will have to factor that amount into the purchase price which will make my short sale offer to the 1st much lower. If the 1st doesn’t know about the second, it seems that they would consider my offer ridiculously low. What would be their motivation to short sell it to me when they could let it go to auction and either extinguish any junior liens, or better yet be paid off entirely by the 2nd lien holder should they discover what is happening. It seems that it would be better in a situation like this to notify the 2nd position what is happening and try to cut a great deal with them and pay off the 1st myself. Am I seeing this correctly?

Thanks,
Jesse

Answer: –  In this market, nothings seems like a ridiculous offer.  No question you have to deal with both banks.  In order for a short sale to go through you need the cooperation of each lien holder.  Typically what tends to happen is you negotiate the amount you want to pay to the first lien holder.  They will then decided how much they are willing to pay the 2nd to “release the lien” or “satisfy” the loan.  Often times the 1st will only allow a small amount ($1000 or so) to be paid to the 2nd, which can be a slap in the face.  So depending on the deal, sometimes you have to negotiate with the 2nd to pay them a different amount “handled outside of closing” so that everything will work out.  In most cases, no, you don’t have to tell them there is a 2nd, they already know.  You just need to tell them what you are willing to pay (short sale) factoring in also that you need to payoff the 2nd.

And the reason why they don’t want to let it go to foreclosure is because more than likely it’s not worth what is owed and the 2nd is not going to bid at the auction.  Now obviously this isn’t the case all the time, but especially right now, homes values have dropped a great deal, some upwards of 50%, so they would rather unload it to someone else and take a loss now rather than end up with more inventory they can’t get rid of later.