How To Deal With Two Mortgages
in Short Sales |
By Deb McMillan |
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Often houses in pre-foreclosure have not one but two mortgages to
deal with. So what is the proper procedure for negotiating a short
sale with two mortgages?
On homes under $130,000, the first
mortgage is typically higher than the second mortgage and usually
the total value of the home. So the best place to start is with the
first mortgage. The second often won't negotiate until they see that
the first mortgagor has taken a discount first.
Prepare all
the reasons why the bank should take a discount: repairs, pictures,
crime in the area, long days on market when it is time to resell,
commercial or industrial buildings in the area, environmental
problems, leaking septic, and any other reason why the bank won't
get the amount of money loaned back at the sheriff sale or when it
gets listed and sold by a realtor.
Once it looks like the
first mortgagor is going to accept a discount, start negotiating
with the second mortgagor. If the first is taking much of a loss on
the mortgage, the second mortgagor won't get anything from the sale
and they know that.
When the amount owed on the second
mortgage is anywhere from $10,000 to $30,000, start by offering $500
or $1000 as a full payoff. Then negotiate from there. A 10% final
payoff on the second mortgage is a great place to end up. Remember
to provide as much data as possible regarding repairs that need to
be done on the house to prove that it is worth less than the amount
owed.
On a higher end home, keep in mind that the first
mortgager is likely to receive close to 90%-100% of the money owed
them. So focus on the deep discount with the second mortgage to help
cover the costs of the first. ALWAYS ask for a discount on the
first. The worse they can tell you is no.
On occasion, the
first and second mortgages could equal approximately the same
amount. Simply follow the strategy explained above. But know that
the first mortgagor will get some money at the sheriff sale. You can
get some discount here, but the bigger discount lies with the second
mortgagor.
The more information you have which shows the
value of the property is less than what is owed, the better
especially if extensive repairs need to be done. Also, make sure the
second mortgager does a complete home inspection rather than just
driving by the property to assess the face value. This is especially
true with the first mortgagor too. They must go inside to see the
house, primarily when the house is in bad shape.
You already
know the first mortgager will get most of the money owed them, so
negotiate with the second mortgager for 90% off the amount owed. And
since 90% is your target, start at a simple $500 or $1,000 to give
yourself some room for negotiation.
As part of your
negotiation tactics, remind the second mortgager that no one will
want to buy the house at the sheriffs sale because the amount of the
repairs will be too extensive to make the purchase profitable.
Offering them $500 or $1,000 just may be more than they will get if
it goes to sheriff sale. So by allowing you a short sale discount,
you actually save the bank money.
And everybody wins. |
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