Wondering how to settle your second mortgage in a short sale?
Many of our clients have two mortgages – a first mortgage and a second (or a home equity line of credit). Frequently, a sale of the home would provide enough proceeds to satisfy the first mortgage, but not enough to cover the second. Unless the sellers have the funds to cover the loss, usually a short sale
on the second lien only is necessary.
How does this work?
For example lets say Mr. and Mrs. Smith have a home that is selling for market value of $250,000.
They have a first mortgage of $200,000 and a second mortgage (or home equity line of credit) for $75,000. First mortgages are in line to get paid first in any sale and there will be enough to pay off the first mortgage in full in this situation.
After the costs of sale and a full payoff to the first there is roughly $30,000 in proceeds left. In order to clear title of all liens, we have to negotiate with the second lien holder to accept the $30,000 to release the lien and ideally settle the full balance of $75,000.
We frequently encounter this situation and the process involved in shorting a second is actually much the same as a short sale with a first lien holder but generally a little simpler and faster. While there are no actual set processes or guidelines involved that lenders are bound to when processing short sales on second loans, they are currently generally agreeable to settling these debts.