Payoff to Jr Lienholders outside of escrow
Has anyone else come across a situation where the Jr. Lienholder is asking the seller for more than the first is paying to settle with them? How have you handled this when the first won't pay them any more and the investor will not allow the parties to pay the jr any more through escrow. Is it unethical or unfair to the first to pay off the jr outside of escrow prior to COE? Seems to me, whatever it takes to get the short sale done is fair. I am looking forward to hearing your comments.
Thank you!
Replies to This Discussion
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Permalink Reply by Smitty on
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Donna, we had a pretty good discussion about that a few months ago. I think if you do a search you can find it. I remember Wendy was part of it so if she's reading maybe she remembers it and can repost the link.
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Permalink Reply by Donna McClelland on
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Thanks, Smitty for your fast response! I did do a search before I posted but I must have not used the correct search terms. I will try again.
Smitty said:Donna, we had a pretty good discussion about that a few months ago. I think if you do a search you can find it. I remember Wendy was part of it so if she's reading maybe she remembers it and can repost the link.
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Donna I did a quick search. Read through these:
http://shortsalesuperstars.com/forum/topics/buyer-to-contribute-to-...
http://shortsalesuperstars.com/forum/topics/2000-shortfall-between-...This should help you.
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Thank you, Smitty! I agree with you and Wendy that the first should have no say about the second being paid outside closing prior to COE. The trickiest thing is determining who (Fannie, Freddie, HAFA, not HAFA, etc etc ) will accept POC on a HUD. If it's handled outside closing before COE, in my opinion, it needn't even be disclosed on the HUD. I mean, what if the seller, the day before they got approval from the first, paid off their second on their own (if they won the lottery)? Why should that be disclosed on the HUD or disallowed in any way? I'm beginning to think about looking for an easier job . . .
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Permalink Reply by Judith L. Watson on
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Friends - I am not an expert in short sales, as I have closed a handful as an agent, but I do have extensive experience in the Title/Escrow field and would caution any payment outside of escrow to the junior lienholder, even prior to close of escrow. I say this because even if the Seller did receive a windfall and paid $$ to the junior lienholder, that $$ would technically need to be disclosed to the first lender in the Seller's updated financials. The short sales I have closed have included a document at closing wherein all parties affirm there are no undisclosed payments. I have seen transactions where the seller and junior lienholder came to an agreemeent via a promissory note for the additional $$ required with first lender's approval. Hope this helps.
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Permalink Reply by Tim W on
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If you do it outside of closing make sure you get the second to give full release of debt not just lien. YOu can have a second hud go to the second only. We have done this in the past and it has worked. Nice and clean that way.
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Permalink Reply by Roberta Baldwin on
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I had a similar situation. The first lienholder accepted an offer about $200,000 less than the loan amount and first tried to tie a 10-year payout of $30,000 to the acceptance, but the homeowner negotiated it down to a one-time $5000 payment at closing. Then, the second lienholder of a $48,000 HELOC demanded $28,000 in cash to close the deal -- that included $25,000 from the seller (the bank allowed her uncle to pay that fee) and also took the $3000 offered by the first lienholder. The second lienholder, a big regional bank, held us up for weeks. The first lienholder, a smaller local bank, was much easier to deal with
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I am so impressed with how nice and helpful everyone is on this forum! Thanks for all your input! I ended up calling the negotiator and asking if we could settle the 2nd outside the short sale and she gave me her blessing saying "It just can't show on the HUD." This is a Fannie Mae loan with Chase.
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You may want to find out how they are going to report this to the credit companies. They will seller will have to hits on their credit report vs just one. Also find out what department you will be dealing with after close.
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Permalink Reply by Phil Putnam on
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Donna,
The homeowners signed a promissory note to the lenders. If either lender works out a deal with the homeowner outside of escrow then it is perfectly legal and ethical, they owe the money. However, if it is truly outside of escrow then it should be a private a greement between the parties and the escrow company should have no knowlwdge of the agreement. Example, a promissory note between a lender and seller due to a short sale, those are not shown on the hud and are paid outside of escrow, we see those all the time. One thing we fail to see here is that the homeowners have an obligation to pay these lenderback what was promised and if the homeowner and lender agree to arrange something between them outside of escrow then all they are doing is trying to fulfill that obligation all be it at probably at a discount and in an unsecured fashion. When the lenders ask for this outside of escrow they are not doing anything wrong they are just trying to do there jobs and mitigate the loss, they reason they are asking for it outside of escrow is that they know if it is escrow then it may not be approved by the senior lien holder.
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Great Expanation Phil! Thanks! We have come to agreement with the second for a settlement amount and are getting full deficiency release. We are doing this outside of the short sale now.
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