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release of lien

Going through the short-sell process…full satisfaction or release of lien?

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Question:  I have a house that is currently going through the short-sell process. I have an approval letter for the first and the second. The second is stating “BAC Home Loans Servicing, LP and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above.” I live in CA and the second was an home equity line of credit (HELOC). We have already agreed to pay $2500 to the second and they have agreed, but they are still including this language in the short sale approval letter. What rights do they have to sue us later on?

Answer:  – It depends on what you agree to as part of the payoff. This is where you need to make sure you ADD to the payoff letter that the $2500 is for “full satisfaction” of the loan. See there are 2 types of payoffs. 1 is a “release of lien” which means you pay the mortgage company $2500 and they retain the right to still come after you for the deficient amount. The other payoff is a “satisfaction” which means “paid in full” – they give up their right to come after you for the deficient amount (which is called a deficiency judgment). All they can do is 1099 you for the amount lost of which you can file form 982 and in most cases claim insolvency and negate the 1099. If it was your personal residence, with Obama’s new laws in place, you may not have to pay anyway. So whatever you do, please please please get the satisfaction. Sometimes if they don’t agree to a satisfaction of loan, you’ll just have to pay a little extra more to get that piece of mind.

First lien holder is foreclosing and there is a second lien holder, should I revel to the 1st there is a 2nd when attempting to short sale?

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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.

Idaho Deficiency Judgments and Anti-Deficiency Laws

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Question: I know that Idaho allows Deficiency Judgments. I’ve heard that Idaho also has Anti-Deficiency laws and that they apply only to 1st mortgages on a primary residence. Is this true? What criteria needs to be met to be protected by the anti-deficiency law in Idaho?

Answer: – It’s so hard to say because every state is different. Typically states with anti-deficiency laws apply only to 1st mortgages, and it must be your primary residence. It may also depend on what type of loan you have. In Arizona, despite the anti-deficiency law, if it’s a VA loan, they can file a deficiency judgment. In most cases throughout the U.S., lenders very rarely file deficiency judgments on 1st mortgages, they just take back the collateral. Lenders in 2nd position are more likely to file deficiency judgments because they are the ones taking the biggest losses and they have no way to re-coop their losses because the first took the house. And even still, most of them will 1099 the homeowner. One of the best things you can do is have someone negotiate a short payoff or a short sale on your home and have the lender agree to a “satisfaction” which means the lender is giving up their right to go after the homeowner for the deficient amount. If they only agree to “release the lien” then they still have their right to file a deficiency judgment.

Short sale and release of lien

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Question: Close to signing a short sale agreement between my first(Countrywide) and second(WAMU). this is a rental, Countrywide has settled, second will accept $7000 to release the lien, however they still want to come after me for the $93,ooo balance. Broker(advocate) was told that WAMU has already charge of the second as bad debt. Can WAMU sell the note to a collector that will still come after us for the full 93,000K. Been advise to try to settle with wamu at an agreed amount and make $100/MONTH PAYMENTS TO LIMIT LIABILITY. Any other questions to consider? If the house goes into foreclosure, Countrywide does a trustee sale are we finished with wamu too?

Answer: The best thing you can do is ask for a satisfaction of the loan. Ask them how much they need to “satisfy” the loan. Typically you’ll have to pay more for a satisfaction of loan, but they give up their right to come after you for the difference. If they’ve agreed to “release the lien” then yes, they can and usually will come after you for the difference. If the home goes to foreclosure, you can bet WAMU will file a deficiency judgment because it sounds like that is what they are planning to do anyway. So, no, you are most likely not finished with WAMU. The best thing you can do is try to get them to accept a satisfaction. Good Luck.