Wilshire will not give a full release of a second mortgage on one of my short sales. They will only give a lien only release. They are getting $5000.00 from the first AHMSI. Now the seller of the property just wants to cancel the short sale and file bankruptcy. Any suggestions? There is approx $65000 owed on this second, they say no way will they give a full release and the approval letter clearly states they will file for a deficiency and the negotiator made it clear they are going to come after him for the balance.

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Kynse - I would tell him to consult with an attorney. Bankruptcy might not solve his problem, especially with the senior lien and an upside-down property. His attorney may well-advise him to take the deal anyway, and negotiate later. It is worth peace of mind for him and you to get a consultation. Just have him do it quickly :)
He spoke to a bankruptcy attorney who told him to file, I will tell him to consult with a non bankruptcy attorney. I will get this scheduled for tomorrow. The senior lien accepted $107K on $300K owed with a full release. I don't get why the junior lien holders think they are entitled to a full piece of the pie. If he forecloses and files bankruptcy they get nothing.

Wendy Rulnick said:
Kynse - I would tell him to consult with an attorney. Bankruptcy might not solve his problem, especially with the senior lien and an upside-down property. His attorney may well-advise him to take the deal anyway, and negotiate later. It is worth peace of mind for him and you to get a consultation. Just have him do it quickly :)
Hi Kynse - Good idea for him to see another attorney. I have had Bankruptcy Trustees tell me that all a bankruptcy will do is stall a foreclosure, as the upside-down property has no value to be sold off by the court to pay creditors. He added that the natural result of the bankruptcy will be for the property to go back to the owner.

Kynse L. Agles said:
He spoke to a bankruptcy attorney who told him to file, I will tell him to consult with a non bankruptcy attorney. I will get this scheduled for tomorrow. The senior lien accepted $107K on $300K owed with a full release. I don't get why the junior lien holders think they are entitled to a full piece of the pie. If he forecloses and files bankruptcy they get nothing.

Wendy Rulnick said:
Kynse - I would tell him to consult with an attorney. Bankruptcy might not solve his problem, especially with the senior lien and an upside-down property. His attorney may well-advise him to take the deal anyway, and negotiate later. It is worth peace of mind for him and you to get a consultation. Just have him do it quickly :)
I just got an appointment with a girlfriend of mine that is a attorney. She is going to meet with him tomorrow. I am starting to think that BK attorneys just want a paycheck. Thanks Wendy!
Let us know the outcome!

Kynse L. Agles said:
I just got an appointment with a girlfriend of mine that is a attorney. She is going to meet with him tomorrow. I am starting to think that BK attorneys just want a paycheck. Thanks Wendy!
Kynse,
At some point while your Seller was not making payments on the 2nd he should have received contact from the 2nd offering a "Reduced" settlement amount. They usually say you have to take it within a certain amount of time. However, most will still honor that reduced amount which is typically 50%+/- of what is owed. If they have already sold the loan to a collection agency.... you will have a more difficult time. Collection agencies typically continue to come after the Seller even after the Short Sale and/or Foreclosure, they want to re-coop what they paid for the loan + expenses + profit.
As everyone has stated, consulting with an attorney is recommended.
You can ask them what it is going to take in $$$ to get release of liability. Money now is always going to more appealing and better for them than money in the future.
Today on this advice of the sellers attorney we offered $1500 cash at close from the seller. The $1500 is either going to go to the bankruptcy attorney or the junior lien holder. It is now up to the junior lien holder to decide whether or not to take a total of $6500 or get nothing due to a bankruptcy. I will keep you updated. It would help if the negotiator would return my calls or emails.

Dominique Van Ryckeghem said:
You can ask them what it is going to take in $$$ to get release of liability. Money now is always going to more appealing and better for them than money in the future.
I was given a short sale referral from a BK Atty. said it was better to short sale than file BK. 1st with Wilshire and 2nd HSBC. HSBC wanted 10 % they got $1800 from 1st TD, we reduced commissions to 4% split. They authorized a lien release only. BK Atty. said take it and because seller is insolvent, to negotiate later if they try to enforce deficiency judgement. Closed successfully.
I may suggest a Real Estate attorney or a Tax attorney accountant, someone who has seen these types of successful short sales at tax time.
Will this link help?

http://www.irs.gov/individuals/article/0,,id=179414,00.html

Keep us posted on the progress.
It is not a tax issue the seller is worried about, because the property was his primary residence he will not face a 1099. It is the fact that Wilshire whom is the junior lien holder will only release the lien not the mortgage and the note thus making the seller responsible for the deficiency. He owes almost $100K, 1st lien holder is paying $5000 therefore leaving the seller responsible for the $95K deficiency. Most 1st and 2nd lien holders will do a full release not a lien only release which is how this problem has now occurred.

Theresa Prim said:
I may suggest a Real Estate attorney or a Tax attorney accountant, someone who has seen these types of successful short sales at tax time.
Will this link help?

http://www.irs.gov/individuals/article/0,,id=179414,00.html

Keep us posted on the progress.
Sorry Kynse, read it too fast. YES, I have this happen on 2 occassions, BUT both occassions were of different situations. Do the homeowners own another home?
Reason why I ask is this? 1 of my shorts, similiar situation, 2 mtgs, and the 2nd made the homeowners take out a "note" they called it, for 20 or 30 years. Low low payments, like $85/month or something, interest free. The sellers agreed. They did. They did not a foreclosure, as he was a prominent public figure in town, BUT he had moved from the home and purchased another home in the meantime, then tried doing short sale on his previous residence, Therefore, the bank held him under a barrel.
the 2nd situation was this, OH! and this is yet another blog...i am finding that these 2nd homes, the investment properties that people own, i.e. bought a house for my son and his wife and they didnt pay, or we didnt have a mtg so we took out a line of equity to put a down payment on another home.. well, LOE, LOC, 2nd homes etc...lenders are making the sellers carry notes for the deficiency. You dont find out until
1) the BPO is accepted
2) the short is approved
3) the buyer is ready to close

OH! Now subject to the seller signing this note. I've had lenders call my homeowners and tell them to get a hold of their realtor to do a short sale, "we'd rather do short sale than foreclose" YES, THAT IS BECAUSE THEY FOUND OUT THAT THE SELLER/HOMEOWNER HAS ASSESTS THEY CAN ATTACH THIS NOTE TO! OR if they default on the very small note they make them take out, they can attach it to their other property then.

I have been tricked on occassion, the sellers have been lied to.

Therefore, one short fell through and the home is going to foreclosure, if it dont make it to tax sale first, and the seller is filing BK on the house. Here was her BK attorneys advice to her.

GOT IT!!! HE SAYS TO TELL THE LENDER TO 'PRODUCE THE ORIGINAL NOTE' . HERE IS THE VERBIAGE.

"I suggest that you advise 5/3 that you will not sign the note for the deficiency. Having not seen the note and mortgage, I am not sure if it was originally signed as a non recourse or recourse obligation. Anyway, they should make the deal without your commitment to pay the difference. You will only be doing THEM a favor if you sign the note without getting anything in return. Let's see what they say because you will be discharging any deficiency of a foreclosure sale in the bankruptcy"


KEEP US POSTED.....THESE ARE SO CHALLENGING, AND FUN, DONT GIVE UP!

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