Is there any way to get the 2nd lienholder to waive the balance. What is that procedure? Guaranty bank says that it is their policy to have a promissory note signed at closing for the borrower to payback the balance in either a lump sum or over a 5 year period. Has anyone dealt with this before?
Offer them some cash at closing. If that won't work they must just have to decide whether or not to go through with short sales.
Bryant is right, before California changed their rules, we offered cash at closing to both BofA and WF equity line groups and they agreed to waive the deficiencies and/or promissory notes often.
Good luck with Guaranty Bank and keep us posted,
How did this turn out with Guaranty Bank? I have one with them now, she said the same thing, but agreed to submit it for an exception and see... still waiting to hear back? Any information you can provide would be great. We got HAFA on the 1st with Wells Fargo, just waiting on Guaranty Bank now..
I'm an agent as well as an owner who had a 2nd with GB on my short sale in 2011. They would not agree to the deficiency either on my deal but offered a for me to bring in $4k at closing to call it even. I was not willing to do that at the time. They reserved the right to collect for the deficiency at a later time and have recently begun doing so. My balance was appx $19k or so - they have offered appx $3000-3500 to settle now (can't remember exactly). If it helps for your client to know, it does show up as a charge off on my credit report with a $0 balance. They are a long time, family owned bank and play tough as I understand. Keep us updated - will be interesting to see if they bend on this one!
You need to consult with the closing attorney to make sure you do it legally, but the borrower/seller can make any deal they wish with the second lien holder in advance of closing (if the debt situation is resolved prior to closing, then their is no second lien to clean up) to make certain they resolve their debt and receive a waiver. Some sellers are simply settling their second liens prior to closing to get them out of the way because the first lien holders are becoming more and more unrealistic in their settlement guidelines. Obviously, for a seller with zero resources, this becomes nearly impossible.
In my experience, a threat of foreclosure or bankruptcy after the short sale has worked. Better to get something than nothing I tell them. Depends on the deficiency amount. And your clients tolerance to pay back some part or all. Most lenders will do 0% interest for 5 to 10 years. So how did it work out for you?
Summer, I've had some success with second lien holders who take a hard line, by calling their bluff - sort of. Essentially, Seller can allow home to go to foreclosure, or declare bankruptcy, and they get nothing. So, is $xxxx that they are getting in the short sale good enough, or would they prefer nothing, because those are the only two options for your Seller. . . .
Good luck to you and your Sellers!
Ron is right. HELOC's and most lines of credit are not wiped out in a foreclosure since it is consumer debt. they could care less.
Foreclosure will wipe out the lien. It does not wipe out the debt. The prom note the borrower signed ain't going nowhere unless it can be part of a BK. BKs are a lot more difficult to qualify than they once were. Personally i would never threaten the lender with "they will get nothing". More times than not this is not a true statement.
The borrower should try to settle. If the 2nd won't waive the deficiency then in almost all cases it is still advantageous to go ahead and close on the short sale. This would at least get rid of the 1st and avoid foreclosure. IF the 2nd comes after then they can deal with it later.