Negotiating A Short Sale Second Mortgage

By Sean A. Kelly

Many people have opted to get second mortgages on their homes because more and more people may be in need of money especially after the global recession. At the same time, many people also find it difficult to maintain payments on both their mortgages up to a point where they may find themselves having to let go of their property by means of having a short sale. Organizing a short sale for your first home loan may already be difficult enough with all the headaches of paperwork and convincing your first mortgager to agree to it. Trying to organize a short sale second mortgage might even be more difficult because second mortgagers may not quickly agree to it.

The reason second mortgagers rarely would agree to a short sale second mortgage may simply be because they probably would not be the first in line to gain anything from the proceeds of the short sale. Normally, in a short sale, the first mortgager may stand to gain every single penny from the proceeds of the sale in order to make up for the amount of money they may have lost due to the inability of the borrower to pay back his loan. In many cases, a home would be sold at a value that is considerably less than its current market value because the aim may be to sell the home off as quickly as possible in the hope of receiving some cash to pay existing debts to the creditors. This means that the first mortgager may not even get 100% of the amount owed to them from the proceeds. If this happens, the second mortgager may not even gain anything at all from the proceeds.

You may want to know that if you have two mortgages on the same home and you plan to have a short sale of your home you may have to convince both lenders of your first and second mortgage to agree to it. Basically both lenders may have to accept the terms of the short sale including understanding the possibility that they may not even gain anything from the short sale because of their position along the line of recipients of the sales proceeds. It may prove to be more difficult for you to negotiate with the second position lien holder, namely your second mortgager because they have more to lose than your first mortgager. This may be why you may have to come up with a win-win solution so your second mortgager would agree to the short sale if they too may reap some benefit from the short sale. You may want to keep in mind that if you ignore your second mortgager and they got wind of the short sale, they may have the power to hold up the sale or to push for a foreclosure.

You may want to start by marketing the property and obtain a written offer on your home. This step may make it slightly easier for you to negotiate with both your first and second mortgage providers because they may rarely stop the foreclosure process for a short sale unless you may be able to produce a qualified buyer with an accepted contract. Of course, they may request that you list the property with a realtor because their company’s policy may require your home to be exposed to buyers in your area before they may even consider allowing you to have a short sale. You may also have to give your second mortgager the same documents you give your first mortgager like documents of your financial information, a hardship letter and solid proof that you really are unable to continue mortgage payments. They may then evaluate your real estate market to see if the amount offered is acceptable prior to approving your short sale request.

Having a short sale on your second home loan may sometimes prove to be unfruitful because your second mortgager may not be able to gain anything from the short sale before your first mortgager got their hands on what is rightfully theirs in the first place. However, it may not be impossible. It may take more effort on your part to convince your lenders but it can be done.

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