i am processing an FHA short sale under HUD guidelines, there are 2 liens attached to the subject.

the first position, Chase, approved the short sale including a $2500 contribution towards the junior lien. the junior lien is a heloc. the heloc account has made their position very clear that they will do the partial lien release for $2500, and make the borrower (seller) sign a promisory note for the balance of $20k. Chase says if junior lien does not discharge the full amount they will foreclosure on the property and will kill the deal.

i looked up HUD mortgage letter 2008-43, and could not find any clauses which are clear cut barring short sales to take place if junior liens are not fully discharged. 

has any one worked around this scenario to make the first position accept a partial lien release only? your input will be certainly appreciated!

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I've done FHA short sales with subordinate liens that are:  Settled with an additional payment, Agreed to with prom note, and left unresolved.  Good question if you can force the 1st to accept the release. I would think that you could get that done, if your sellers are on board, by escalating within Chase.  "Because you have one problem, I must give you another."  Makes no sense.  But, there are so many aspects of the FHA program that make no sense.

I agree btw, full settlement of the 2nd for the FHA consideration is not a requirement in ML 08-43.  Could be a new guideline, but I doubt it.

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