If a 2nd has gone to collections, is it impossible to do a short sale?

I've heard this in the past, and I'm facing my first possible short sale in which the 2nd TD is in the hands of a collection agency. Should I not waste my time looking into this, or are all collections as different as all banks? The bank is HSBC, the collection agency is Penncro. Thank you, from Sue

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Permalink Reply by Kathleen Lordbock on August 14, 2011 at 3:43am

I just met with an elderly couple who have a first with Ocwen and the second( local credit union HELOC) was sent to collections at BullsEye. They are current on the first and have spent their last dollar. Payments were over half their income and their water heater and refrigerator failed at the same time.  The first told them to short the second!  MN is non-recourse for firsts.

I have not agreed to take this as I have not dealt with collections in a Short Sale but this has been encouraging. They need to move to a one level but thought they could buy something . They are FSBO and asking $85,000 over what their home will bring. At best we can get $125,000 and it needs a new roof. They will be renters.

 

 

 

Permalink Reply by Sandy Truitt on August 14, 2011 at 3:50am
I have done 1 short sale where the second mtg was already in charge off status. Both were Chase. The balance was for 35k on the second and they made her sign a promissory note to agree to pay 16,000 after closing in order for them to release the lien.
Permalink Reply by Kathleen Lordbock on August 14, 2011 at 3:58am

This couple has nothing left to pay out. I told them to go see a lawyer first- they probably need to stop making their payments to the first as their car is way over 200000 miles and doomed to soon fail as well.I hurt for them.

Permalink Reply by David Altuzarra on August 14, 2011 at 4:00am
To Kathleen's reply if current on 1st mortgage and 2nd is late you can settle on the 2nd. The 2nd mortgage normally wants the homeowner to the property and the property to be underwater. If there is equity they will suggest the property to be sold. It also depends on how late they are on the 2nd and which department at the bank and which collection agency the loan is with. The later they are the easier it is to settle. Standard exceptance is 10% of the balance, but I've seen less. I would start at 5% to see what the 2nd says. I done about a dozen of these.
Permalink Reply by Rick Bennett on August 14, 2011 at 4:04am

With the debt collection agency there are several things they will look at.  First hardship, second what earnings are, available cash, and what future earnings look like for the borrower.  It also depends on your states recourse or non recourse rights after the short sale or more importantly after the foreclosure.  When i take a short sale listing i state "i would never tell anyone to miss a payment on any loan, but i highly recommend you keep the second current at all costs."  For this exact reason, once with the collection agency the second has mentally settled for pennies on the dollar but the collection agency is in the deal to make a profit.  I have also had experience that 6 months after the transaction was closed the agency came back and reduced the debt by 75% for a cash settlement.  Those 2nd lien settlements are all non secured debt so they are really JUNK to the investor and a cash in hand is far better to them than a long term note.

Be prepared for several back and forth discussions with the collection agency and do not think their first offer is their best.

Permalink Reply by The Negotiator on August 14, 2011 at 4:40am

I think it's a lot easier dealing with collections ... they just want something ($) and "typically" won't fight for an unrealistic number. Plus, their approval letters are "typically" a 1 page doc that is as generic as they come, which, is good in case a buyer walks and a new buyer is in place.

Permalink Reply by Karen Walls on August 14, 2011 at 4:54am
I agree with Rick Bennett. So far knock on wood, lol I have not run into problematic deals with the 2nd lender nor debt collector. Matter of fact  they have been quite easy to negotiate with. But the first price they put on the table is not always the best negotiating price, each time we haggle and go with the 2nd price that is more favorable because in foreclosure it could be zip. Again as Rick mentioned a great deal of them are unsecured. And if HAFA participants they are not putting up as much as a battle as years ago! And collections will give you sometimes a run for the money,,,and another bonus for agents to keep in mind with collection agencies, if your deal is a end of the month one, the collector wants that end of the month bonus cha-ching to get it closed!!  Good Luck!
Permalink Reply by Chris Andries on August 14, 2011 at 5:42am
Great advice from everyone.  As you can see it can still be done but you just have to be a good negotiator.   If you are serious about short sales and want to learn all you can you should check out http://www.TheShortSaleCrush.com.  it will help you understand all about short sales.  Its by the master of short sales Kevin Kauffman and Fred Weaver of Group 46:10.  http://www.TheShortSaleCrush.com
Permalink Reply by Sue Irwin on August 14, 2011 at 5:57am
Thank you everyone for your comments. Linda's last comment about 10% is sort of what I expect to find. Luckily, in California now, 2nd TDs are non-recourse in most instances. Being nice -- how else can we get anything done in this business?

Linda Susan Fox said:
I negotiated with a collection lawyer where the second was $170,000 and they settled for $12,000. It was a HAFA Shot Sale and Chase paid them $6000 and the buyer paid the other $6000; all done through the HUD1.  The collection lawyer wanted 10% and we settled on the $12,000.  He told me it would have to worth their time or they would let it go to foreclosure.  Remember they will still be collecting even if it goes to foreclosure, they have nothing to lose.  Most second mortgages are recourse loans.  Good Luck and just be nice.
Permalink Reply by Sue Irwin on August 14, 2011 at 6:01am

Hey Bryant, where is the newsletter located? Thanks! --Sue
Bryant Tutas said:

In the newsletter today
Permalink Reply by Roy Chambers on August 14, 2011 at 6:03am
I am heading to Spokane, WA (5+ hours drive) to see Kevin & Fred. They are awesome! If you are in the area: http://ssgwspokane.eventbrite.com/ Don't miss them.
Permalink Reply by Susan B McCarter on August 14, 2011 at 6:36am
Sue, of course it all depends on the two banks, the investors, length of time, you know the drill.  I've done several, and every time the 2nd has taken less.  Only in one instance over the past 11 years has a 1st said NO to the second getting money.  It foreclosed, but that's not too bad.  Keep at it, if the ROI is good!

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