I have a client who wants me to take over a short sale that failed. She was offered $25,000 from Chase Bank. LCS is the second. LCS blocked her contribution from Chase, stating it wanted the money. Chase refuses to give the money to LCS. She tried to negotiate a discounted contribution to LCS, but Chase refused that as well.

I'm wondering if it would make sense to ask Chase Bank to buy the loan from LCS as part of the approval process? Has anybody triggered this kind of negotiation?

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I respect your opinion Thom, but working in California, my experience has been somewhat different than yours. See, SB 458 does not really say the seller can't contribute. That is a fallacy. It says the bank cannot demand a contribution from the seller in order to approve the short sale. The seller is certainly welcome to offer a contribution. The California Association of REALTORS team of lawyers back this up as well. Plus, I've run this past lawyers in northern California and closed some like this.

I trust this is good news for you.

Hey Broker Bryant: I have not been successful with FHA buyers making a contribution to the junior lenders. Conventional buyers, yes, but not FHA. It's not the short sale lenders that object. It's the buyer's lender that objects, and that might have something to do with their overlays.

Elizabeth - you are correct lenders cannot demand payments from borrower BUT, in several transactions I've had recently, the short sale lender refuses to accept anything from the seller / borrower and have cited SB458 because they don't want any "perception" of a requirement of the borrower to pay.  The lenders I've been dealing with (BofA, Chase and ING) will only allow funds to come from the Buyer or the Broker Commissions.

As we all know, every lender and every negotiator has different opinions of how they handle these things. 

I hope you get yours resolved and closed !

Best,
Thom

 

 

I have had 2 buyers recently who have had to make contributions to the sellers' 2nd lien holder in order to get approval.  In all cases, the amount of money owed on the 2nd was significant (over $100,000) and the 1st would only give $6,000 to the 2nd.  2nd balked every time; we played hardball and said fine, let it go to foreclosure, you get nothing.  2nd (and their investors) said pay up.  In both cases, the buyers decided to pay the extortion money contribution to the 2nd, because they were still getting an incredible deal.  All reflected on the HUD as a buyer contribution, and all approved by the buyers' lenders and the short sale banks.  On top of the chicanery, the 2nd lien hold (different banks in each transaction) in their short sale approval letter, reduced the commission AFTER THE 1st LIEN APPROVED THE FULL COMMISSION.  Irritating, because the 2nd lien holder doesn't get that extra commission money - it just meant the 1st had to pay out less.

Are y'all seeing much of this type of activity?

the myth is that a HELOC 2nd is wiped out in a foreclosure IT IS NOT.  The lien is, but the debt remains, the only way to stop it is BK.  This is why they play hardball.  This is also why I prepare a buyer to pay extra $$$ to second and allow them to lower their offer to compensate.

Correct - And I've seen a trend lately of the 2nd selling the note for slightly higher than what they were offered by the 1st, to a Collector, a few days prior to Trustee Sale, and the Collectors are ruthless to collect and make a profit on their investment.

Hello Joseph: Seconds are wiped out in California if they are purchase money. Hard money seconds (recourse loans) might lose their security for the loan after a foreclosure, but yes, those can still pursue the debt. Other states, of course, have other laws regarding second mortgages. We have to be very careful discussing ramifications that can vary from state to state.

There is also another law in California that pertains to seconds when the first and the second are held by the same bank -- it removes the right to pursue even if that second is hard money. Ya gotta love law.

You know, I was just chatting with someone who claims that they are being pursued by a 2nd (not hard money) on a purchase money owner occupied after a foreclosure in CA.  The 2nd is not suing for a judgment, but they are still pursuing through collection companies.  Not the first time I've heard that story either.  I haven't verified any facts myself, but I have heard the stories.  Have you heard this as well?

Hi Tni: No, I haven't heard that but it doesn't surprise me. Because it doesn't mean they have a right to do it, but since when has that stopped a collection company?

Exactly!   I think this is another reason short sale is favorable. 

It puts a bow on things.

Once Chase put the $25,000 incentive in writing, they are bound by federal regulation to pay the incentive and not allow it to be "spent" on junior liens or other expenses.  How about offering LCS a prom note, then the seller can pay off the prom note after closing using some or all of the incentive cash.  That is perfectly legit.

Wendy, What federal regulation are you referring too?

Kevin, I don't know the exact reg but Chase quoted it - the Chase incentive letters I've seen are pretty vague except for the amount of incentive.  The incentive letters I've seen from Citi and PNC are very specific - the letters include a sales price.  In one file, Citi reduced the incentive - when I challenged the reduction & referred to the federal reg, I was told that the fed reg didn't apply because the sales price stated in the incentive letter had not been met.  In other words, they too were famaliar & recognized there is a regulation, they had found a way around it. 

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