My client (Seller) originally bought a home with a 1st and 2nd mortgage with CMG Financial in 2006. The mortgage started slipping away from him so he entered a foreclosure defense agreement with an attorney in California, this was the advice given to him from a friend. This friend agreed to pay the attorney if she could live in the property. A year or so after she moved in, she stopped paying the attorney. The attorney quick claimed the property to the Friend. The friend took out 2 loans totaling $100,000 using the property as collateral. She then quick claimed the property back to my seller and despaired. Mr. Cooper is now the servicer of the 1st mortgage. My question is this: Do I need to contact the lenders of the 2nd, 3rd, and 4th liens before I initiate the short sale in equator on the 1st mortgage? Any other advice to proceed with the short sale? 

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First of all is the property worth it to roll your sleeves up to do all this work? Because from what you are mentioning, this wont be that simple.

Yes & No, on the short sale applications from Mr. Cooper & the standard 710 & RMA asks if there any other lien holders, you would write the other lien holders there & you let the rep from Mr. Cooper know the 2-4 position lien holders & then Mr. Cooper will negotiate with them from there

In all honesty, it sounds like a mess & I think you can get the 2-4 positions discharged through title through a chapter 7 BK, which would be a lot easier than negotiating with 4 lien holders.

Russ, you need to settle all liens on title. You likely need the "friend" to cooperate if they are the one who pulled out the other notes and the servicers may need their financials. I'd be exploring that before spending too much on this transaction. Not sure if this other person is still involved or if they will cooperate?

A ch 7 won't make it so you don't need to settle with the lien holders.

As long as all parties who need to cooperate, will cooperate, you should be working with all 4 liens at the same time. Subordinate liens may take the position of wanting senior ss approval prior to finishing their review.


Brett brought up a very important factor that I forgot to mention. You need the cooperation of the "friend" otherwise how will you get authorization to the servicing company?

Brett, "A ch 7 won't make it so you don't need to settle with the lien holders."

A dealt in several cases that the property owners filed chapt. several years before I approached them to do short sales & the second mortgages were discharged (Satisfied) from title due to the chapt. 7.

Russ, there is a lot of moving parts involved in this, you need to figure out if it's worth it.

Good Luck!

When a mortgage debt is discharged through a ch 7 the lien still remains on title. If the lien is on the property then the debt must be settled to release the lien from the property. Typically ch 7 do not strip subordinate liens. If it was a ch 13 discharge and they motioned to strip the lien if it had 0 equity then a subordinate lien may be stripped as part of the discharge.

When the property was Quit Claimed to the "friend / tenant" did the owner sign that Quitclaim Deed?  I think the bigger concern with this transaction will be Fraud - specifically Mortgage Fraud, Fraud for Housing, etc. If the seller was a knowing participant, there are bigger problems lurking.

If you proceed do so with much caution and knowing there may be a fraud suit by the lenders.

Thank you all for your comments and guidance. I know the "Friend" is no longer reachable. My client (Seller) has tried to contact them to help get it straighten out but to no avail. 

As far as the title changing from person to person. Im sure the seller has some knowledge but im not sure to what extent. 

Im not sure if this SS will be worth all the trouble cleaning up. Thanks again everyone! 

The biggest challenge is the 3rd and 4th lien due to non borrower cooperation. If the "friend" is the borrower of the 3rd and 4th then they likely need to provide financials and/or sign off on those short sale approval letters. Without that persons cooperation you likely will not get this done.

My initial reaction is I would not touch this. I imagine the lawyer did not comply with the California Home Sales Equity Act as required when a property is in foreclosure and most likely did not give the owner adequate paperwork to sign nor respect cancellation rights. Under the Home Sales Equity Act, sellers can reclaim their property within two years of the foreclosure if their rights were violated, so future buyers could be at risk. 

This is not legal advice.

I also agree with Thom that fraud is involved with the quitclaim deeds. Why would a seller agree to take a quitclaim deed that transfers ownership with MORE debt attached to it?

Moreover, who would make a loan to a seller who just acquired title via quitclaim without equity? Those loans might not be legal. 

Short sales these days are oh-so-much worse than they were in 2006. The seller might be better off filing suit against everybody.

Further, a Chapter 7 does NOT release the debt. It only releases the liability. Most people who file a 7 BK do not instruct their lawyer to remove the lien from the public records because it costs more to do.

I like a good challenge like most short sale agents, but even pro bono, I would not touch this.

Very sound advice. Although I like a good challenge, this one might be more then I can chew. Thanks everyone! 



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