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If you are an owner of a home with a second loan that is a Home Equity Line and you are having trouble paying your mortgage you should do something about it right away. I know you have probably heard that banks are taking up to 2 years to foreclose so you have plenty of time, but there is a dirty little secret in the mortgage world.  HELOCs are not entirely like traditional mortgages, they are more like credit cards. If you do not pay your first mortgage your lender needs to find a way to collect the money or take your home back. However, with a HELOC the lender can turn the account over to a collection agency, get some money for it right away, and you are left to deal with the debt collector.  

This can become a potential problem if you decide that your best option is a short sale. If you decide to sell your home as a short sale it is often easier to negotiate the payoff to the second if it is still owned by the bank, rather than the collection agency. The bank sold to a collection agency for pennies on the dollar, and would be more likely to let you go for the amount that the first lender offers.  By the time it goes to collection that entity had invested money and will expect to make a profit by getting a settlement larger than what they paid. If you cut out the middleman (in this case the collection agency) it should be cheaper.

So, if you can not pay your mortgage, don't just stand there, DO SOMETHING.  Whether is is going for a loan modification, refinance, or short sale, get started earlier rather than later. It will be less stressful in the long run, and generally much less complicated.

If you have any questions about short sales in the Silicon Valley please feel free to contact me.

Marcy Moyer

Keller Williams Realty

www.marcymoyer.com

marcy@marcymoyer.com

650-619-9285

D.R.E.  01191194

Hi folks. If you negotiate Short Sales for a living then you know that a HELOC ( Home Equity Line of Credit) can be a real pain in the rear end. They usually want more money than what the 1st lien is willing to give them and they want the Borrower (Seller) to participate in their loss by making a cash contribution and/or signing a promissory note.

The Borrower needs to know this at time of listing. As a Short Sale listing agent you need to ask them at time of listing if their 2nd lien is a purchase money mortgage or is it a cash out equity line. If it was a cash out then the next question is; "Are you willing to participate in the loss?" If they answer "No" then there may be an issue. 

Now having said that, the Seller may not be a position to participate in the loss. There could be a true financial hardship and they just don't have the means to bring cash or pay off a promissory note. If this is the case then you need to let them know that you will do your best but that there are no guarantees that the 2nd will cooperate. The 2nd may still remove the lien (mortgage) so the Short Sale can close but they will more than likely not remove the obligation for the Borrower to pay (note) without some kind of participation.

This may suck for your Seller but look at it from the lender's perspective. The Seller pulled cash out of his home and more than likely spent the money on consumer goods. The lenders know this. Should they completely forgive the debt when the borrower has a paid for Hummer sitting in the driveway? Would you? I don't think so.

So what can you do? If the Seller has the means then they should just participate in the loss. They spent the money so now give some of it back. Chances are they can settle for 20-30 cents on the dollar. That's a darn good deal. Take it and move on.

If your Seller does not have the means......Negotiate. Negotiate hard. Prove to the lender that the Borrower does not have the cash or the income to participate in the loss. Then show the lender where the "equity money" went. If it was used to pay medical bills and put food on the table then show this to the lender. It's my experience that most of the folks I help did NOT squander the money. They used it to either live on or they put it back into the property. The lender needs to know this. Lay it out and make the case.

The most important thing to remember is that it is the lender's negotiator's job to limit the loss as much as they can. They are paid negotiators and some are very good at what they do. Are you? If not then maybe you should not be handling Short Sales.

Your Sellers are depending on you. Please don't let them down. What say you?

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