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Short Sale Issues.

Posted by John Rosenburg on March 3, 2011 at 9:17am in Short Sale Discussions

The situation is I own a rental property, that has a 1st on it for $200,000 and a second TD to my bank, as collateral for a loan (balance of loan is $350,000).

My question is, that If I decided to sell the property for $250,000, and the actual FMV is probably $400,000 - but I don't want to deal with it any more and I know someone who is ready to pay cash for the deal. Can the bank that has the 2nd TD, prevent me from selling the property, as they won't be paid off?

Second question is, assuming I don't or can't sell as above and I want to refinance my first. So I have a private individual who will pay off BofA on the 1st mortgage in full, and we leave the 2nd as is. In this scenario, can the bank in 2nd TD, prevent me from refinancing or paying off the first??

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Replies

Wendy Rulnick March 3, 2011 at 2:32pm

John - The junior lien can prevent you from selling - they do not have to agree to release their lien or settle. You might be able to negotiate with them, or hire a good short sale agent to help you.
Smitty March 3, 2011 at 1:59pm

The second lien holder can derail the refinance and NOT agree to subordinate. They have rights to first position in a refinance. The first position lender is not going to agree to be in second position so that can absolutely affect your refinance. It doesn't matter if it's the same amount or a new amount, the second lien holder has to agree to retain their 2nd place position.
John Rosenburg March 3, 2011 at 1:35pm

Smitty,

Why would the second have to agree to subordinate, since they are already a second, and the first is being refinancied for the same amount, so their position has weakened by anything. Can they prevent the first from being refi'd, by not subordinating to the same position?? Wouldn't that be an unreasonable position for them to take?
Smitty March 3, 2011 at 10:58am

Also, keep in mind, if you refinance the first, the second has to subordinate. They may not want to.
Bryant Tutas March 3, 2011 at 10:40am

John. If the 2nd is lien (mortgage) on the property then they would have to agree to any settlements unless you pay them in full. I guess someone could pay off the first and assume the 2nd. But why would they?