Hi Everyone: We are having a difference of opinion. When there are two lenders involved and the sale of the house will bring enough money to pay-off the 1st lien holder but not the 2nd lien holder, we still need to notify both lien holders of the short sale correct? I say yes but another member of my office says only the second lien holder needs to be notified since they are the one being affected. ????
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I think they both deserved to be informed in the matter, since they were both involved. And even if it was only the second lien that will be affected, still, they both deserved to be informed, regardless of the situation.
Wayne, if the first is not short they are not both involved. The first will be paid in full just like a normal sale. Order the payoff and make sure that the proceeds after expenses will cover the first but no need at all to initiate a short sale or even tell the first about it, alot of wasted time. I don't see your logic here?
I once tried to get the 1st to pay consideration to the 2nd, even thought the 1st was not underwater. Early in my SS life. So, I submitted the full package to the 1st, with request for payment. It did not work. But, if the foreclosure value is well below the payoff for the 1st, the request could be rational.
The borrower has a legal right to payoff the loan under terms of the note/mortgage, so it cannot be required by the 1st, I think.
I had one recently that was similar to this. I was originally told by the owner / borrower that they owed more to the 1st than they actually did - Both 1st and 2nd were Wells Fargo. I initiated a short sale with both 1st and 2nd. The short sale request for the 1st was cancelled because the payoff would be in full. They also sent me an updated payoff demand and told me not to bother communicated with them other than to send the full amount of the payoff. From that point on I only dealt with the 2nd. We closed ahead of schedule and all is good.
At the end of the day, if you have a payoff demand and you know it will be paid in full, don't bother with the first - and the borrower does not need to provide anything to them.
WE had a Leagal Update 2 HR. Course last week and I asked the Attorney that question.
He said just notify those lenders that will be shorted of the short sale. The ones being paid in full could care less.
I run into this scenerio all the time, I get a payoff for the first, pull up a preliminary HUD1 and make sure that the 1st won't be shorted if the numbers are too close. Sometimes when you add commission, payoff to the 2nd and closing costs you may still have a short sale. I would check my figures first and see what comes up before moving forward. :)
I have closed several in which we had a first that was paid in full and we did not send paperwork to the first. Like Jeff says, there is no need to since they are paid in full. We do get a beneficiary demand from the first. Of course, if you're up against a foreclosure and need the auction postponed, that's different.
Jeff is certainly right that a 1st mortgage can't hold you up if you pay them back in full. I would still start the process with them anyway, because they might become short and because you might need to get a foreclosure delayed.
If the first isn't being paid, they may start foreclosure proceedings, which will make the amount owed to them go UP. So as you wait to find a buyer or to get the 2nd mortgage to agree to the sale, the first mortgage is increasing it's balance with attorney's fees, unpaid interest, etc. So you might start by just needing to short the second, and then you have to race back to the drawing board to get approval from the first.
If you can pay back the first, all you've waisted is a "little" time and paper, better than losing a client to a foreclosure.
The first lender is being paid in full, all you need is payoff from them. They could not care less what happens after they are paid in full. No need to tell them anything if they are getting paid in full, it is a normal sale on their end.
AMEN.
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