Hi folks. Do you ever wonder what happens after the Short Sale? If the lien holder states they will be contacting you after closing to make arrangements for you to pay the rest of the money you owe....do you believe them? Well you should.

I had a closing a few months ago where Bank of America was the 2nd lien holder. The lien was a HELOC (home equity line of credit) for $65,000. For those of us that work Short Sales we know that these HELOCs can be very unforgiving. The reason is that these loans are normally taken out after the property was purchased. In many cases the funds from the HELOC were used to purchase "toys", e.g., furnishings, cars, vacations and other goodies that having nothing to with real estate. The holder of the HELOC, in this case Bank of America, are not too anxious to take a loss while the borrower is driving around in a free and clear Hummer.

When it came time to negotiate the HELOC on the property the best we could do was get them the $6,500 allowed from the 1st lien holder, GMAC. Bank of America accepted this amount.

However, Bank of America's Short Sale approval letter specifically stated that the deficiency of $59,500 was to be charged off as a COLLECTIBLE balance and that they would be in contact with the borrower to make arrangements to pay this balance. Bank of America would not forgive the "Short".

The seller was however being forgiven almost $300,000 from GMAC on the 1st lien In fact, GMAC was stating that the 1st would be satisfied in full. Being that this was the case the seller decided to accept the terms from Bank of America, close the transaction and deal with the shortage later.

The transaction closed and all was well.

About 90 days after closing Bank of America contacted the seller to make arrangements for the money he still owed. The Seller negotiated with them for a couple of weeks and was able to get Bank of America to accept $2,500 as payment in full!

So in the end it all turned out very well. For a total payment of $2,500 the seller was able to be unencumbered from a combined debt of more than $350,000!! And he avoided having a foreclosure on his credit. I would say he did very well. What say you?