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?
Are you facing foreclosure in Florida?
Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.
Want to find out more? www.CentralFloridaShortSales.com
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Comments
Kevin,
Most of my 2nd are totally underwater, with the 1st taking a significant loss also.
I have negotiated one sale, with large HELOC, where the 1st was fully paid off, with proceeds going to the 2nd.
To Bryant's post, the seller made a substantial cash contribution, in return for full-satisfaction. It was a pretty good deal, actually, as the seller had income and assets.
I have another one now, same situation, but less income/assets.
I think the HELOC is more likely to be on-portfolio, as opposed to the 1st, which is more likely to have been sold on the secondard market (eg. Fannie or securitized.)
I think the HELOC may also be booked to a different entity at the Bank, hence the different treatment? (eg, Retail Bank versus Mortgage.)
At Wells, for example, negotiating the HELOC is like dealing with a separate company from WF Home Mortgage.
Lots of Citi HELOCs underwater in this CT.