The newest short sale negotiation strategy of a second, or junior lien holder, in their quest to obtain the maximum return on their debt is to offer a waiver of deficiency language in exchange for cash, or promissory note from the sellers at close.
These Jr. lien holders, which are most likely to receive a minimal amount at closing, have become more cooperative in their release when they are able to recover more than the first, or primary lien holder offers them for their cooperation to close a transaction.
Confusingâ€¦let me clarify a bit by example:
Seller owes a first and a second loan on a property, which he is selling. The offer from a buyer is less money than the first loan balance owed, let alone any money to pay towards the second. The first lien holder agrees to accept the offer, and in order to gain cooperation, or release of the lien from the second lien holder, offers a nominal amount to them.Â The second lien holder takes the money offeredÂ by the first lien holder (normally $3,000, unless both notes are held by the same bank), and then is in a position of negotiating for a â€œfull releaseâ€ on his balance with the seller.
They have already agreed to accept and close the sale, but with the right to sue the seller for the deficiency (difference between the $3,000 and the actual balance owed.) In order to gain a full release, they wantâ€¦you guessed itâ€”more money! The average they are seeking to obtain is 20% of the balance owed, less whatever money they will receive from the first lien holder.
The most important thing to note is that the bank will accept cash (no surprise there), OR an UNSECURED PROMISSORY NOTE in settlement of this debt. The notes are typically for 3-20 years depending on the financial circumstances of the seller, and the amount owed. If the seller is in a position to pay the cash, typically it is Â½ the promissory note amount if paid at close of escrow.
The benefits of a short sale to the seller are:
- Dignified exit from the property
- Less effect on the credit score
- 18-20 months sooner than foreclosures for credit score renewal
- Repayment of debt at reduced expense
When you are in a situation that calls for an expert, be sure you have an experienced and accredited short sale and foreclosure agent working on your behalf. The art of negotiation is one that is honed through practice!
A hui houâ€¦