Profile picture for Danielmailin

found second lean on a shortsale after being approved

I had found a hoome that was an aproved short sale, I made my offer and received an aproval from the sellers bank within a week.  In the aproval letter they stated taht they want to close by the 30th of this month.

Evrything was fine, I was able to get a rush on my loan aproval, and as we are getting closer to the closing date, I get the news that this house has a second lean.

Here is my question, if the house was approved by the first bank as a shortsale, what can the second lean holder due? does this void the whole shortsale transaction?  Would they inclrease the selling price of the house, or would the banks get together and split their shares?

Has anyone run into this.

This house hunting has turn into a nigthmare, do I have any hope or should I walk away and look for another home.

Thank you,
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July 20 2009 - Homestead
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Answers (3)

Hi Danielmailin,

This is really starting to be a common thing.  I just answered a question on anther thread las week, with the same exact situation. We had a client in my office who was actually clear to close, subject to clear title.  It took weeks for them to get the title report to us,  and it came back with a $10,000.00 second lien.  My Clients ended up negotiating with the second lien holders directly and they settled for $3,000.00.  The First lien holders had refused to settle for anything more than $500.00 with the Second lien holders because that is about what it would have cost them to refile the foreclosure and include the second lien to extinguish the claim.

Technically, the Seller was not able to "accept" an offer because of the second lien on the title.  Their foreclosure attorney blundered in that they did not do a thorough search on the property before they finalized the initial foreclosure, and the second lien holder does have a position until they are settled or their lien is extinguished by a court.

Your options are may include:

1.  Negotiating directly (or through your attorneys) with the second lien holder to see if they would settle for a lower amount.  This may only be worth it if you are paying far less for the property than what it is worth.  My clients had a $295k contract on a property that appraised for $350k so they considered it very much worth their while to pay $3k more for it.

2.  Negotiate with the First lien holders so that if they end up going back to court to extinguish the second lien, they will offer you a right of first refusal on the property before they put it back on the market.  They should be willing to do this because they dropped the ball in the first place.  I hope you have a good attorney to make this point to them.

3.  You can walk away from the transaction, receive your earnest money back, and look for something else.

I can understand how frustrating this is for you.  I hope you have an experienced and attentive Loan Officer.  I cannot tell you how many calls (including three way calls) I had to make between all the attorneys, realtors etc just to "keep the peace" and ensure that my clients achieved their goal. 

If it is worth the effort to you, this deal may not be dead just yet.  If you consider it truly not worth the effort, by all means walk away and look for something else.

We have a policy now in my office that we will not have our client pay for an appraisal or anything else, on a short sale transaction, until we have received a Clear title from the Seller. 

Good luck to you.  I hope it all works out for you.
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July 20 2009
The second lien holder will likely be willing to settle.  In many cases the security interest is effectively lost because of negative equity, so they are usually willing to take beteween 1,000 and 10,000 to satisfy the lien.

The seller and listing agent should work on getting a settlement, and then adjustments might be necessary to make the contract work.

This will take time, so if you were expecting a quicker closing, you might want to continue your search.
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July 20 2009
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title insurance would normally cover a situation like this, but I'm not sure how that would work since you haven't purchased the property yet
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July 20 2009
 
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