If you have a 2nd Mortgage and are able to complete a short sale, you will probably be responsible for the deficiency balance on the 2nd mortgage. The good news is, you may be able to negotiate the deficiency balance and eliminate that outstanding debt for much less.
Before I begin, let’s take a look at the benefits of both a Short Sale and a Foreclosure to help you decide if a Short Sale makes sense for you and your family.
Benefits of a Short Sale
- You are in control of the sale.
- You may sleep better at night knowing who is buying your home.
- Your home sale will be handled like any other home sale.
- You will be eligible, under Fannie Mae Guidelines, to buy another home in 2 years instead of 5 years.
- If your credit report does not reflect a 60 day late pay, under Fanny Mae guidelines, you will be eligible to buy another home immediately.
Benefits of a Foreclosure
- There are no mortgage payments to make while you are waiting for the foreclosure to be completed.
- The home is yours until the foreclosure is final.
- There will be no strangers touring your home.
- Some banks offer "cash for keys" after a foreclosure sale.
After researching your options, you decide to move forward with a Short Sale in an attempt to avoid foreclosure. It’s important that you understand, in most short sales, the first mortgage holder, is the primary beneficiary of the short sale. This means that most short sales compensate the primary or first mortgage holder and the second mortgage holder usually agrees to accept a very small amount or percentage to RELEASE the equity interest in the home.
In other words, the second holder agrees to have the remaining balance (after the small amount paid for releasing the equity interest) become an UNSECURED LOAN now.
And, in most cases, you are still responsible for this balance! The good news is, you can usually negotiate a second mortgage balance after a short sale.
Here are 3 tips on how to negotiate a second mortgage after a short sale
#1 Get Prepared
Before you attempt to negotiate the debt with your 2nd mortgage servicer, you need to know where you stand financially. It would be a good idea to complete a simple BASIC BUDGET that lists all of your assets and liabilities.
This will show the second mortgage holder where you stand and what you possibly could or could not do to settle the remaining balance.
#2 Don’t Ignore your 2nd Mortgage Holder
Most of the time, your 2nd mortgage company will try to contact you right away. Don't just ignore their calls or letters as this will leave them no choice but to file a claim with the intent of getting a judgment against you for the remaining balance.
If they do file a claim, you will receive a SUMMONS and your chances of getting a good settlement go down!
Be proactive! If they haven’t contacted you, then you need to call them to get the communication going.
#3 Start Negotiating
Although the negotiation process can be long and in some cases, very stressful, most second mortgage holders will accept a settlement for less than the amount you owe. How much less?
That depends on many factors. Your 2nd mortgage servicer will want to know:
- What are your financial assets? (usually there are no assets or you wouldn't have had to do the short sale in the first place)
- Are you employed?
- Are you receiving retirement income?
- Are you receiving unemployment income?
All of these things are taken into consideration when working out a settlement with you. Because you have already worked out your budget, you know where you stand. Stick to a settlement with payments you can afford. There is no point in negotiating a settlement that you default on in the first month.
Don’t forget to GET THE SETTLEMENT AGREEMENT IN WRITING! Do not rely on phone conversations or just emails. If you don’t, they can come back for the full amount even after you’ve paid the agreed settlement.
If all of this seems like just TOO MUCH, click here & let us help!
