Short Sale Roadblocks by Junior Lien Holders
Whenever a home is sold in a short sale (a transaction where lenders agree to accept less than what is owed on the property), junior lien holders and home equity loans have to be dealt with. Sometimes tough bargaining by second lien holders holds up deals and even kills home short sales. This is the case even as banks prefer the practice to avoid foreclosures and help clear the market of homes that are worth less than the loans on them.
Overall, short sales reached the highest number in three years in the first quarter of this year – 133,192 total transactions. However, according to the vice president at RealtyTrac Inc. (an online market for distressed property), second liens are standing in the way of more short sales than in the past. Although about 39% of homes that have entered the foreclosure process have more than one lien, only a small percentage, just 4.2% of short sales completed in the first quarter were on homes with second mortgages. Since it appears that short sales with a number of liens are not happening as often and are taking longer to complete, this raises the question of how homeowners can navigate the web to obtain a short sale.
At the end of the day, homeowners should remember that their agreements with lenders are contracts upon which they are obligated to comply. Modification of those agreements and the forgiveness of money owed is simply an option for the bank–not a requirement. Therefore, it is of the utmost importance for homeowners not to go into this process lightly or without professional assistance. If you need help, contact a Burlington county short sale lawyer to navigate through this difficult process.
Secondary liens have become a big hurdle to expediting the short sales market. According to a July 12, 2012 report by real estate information provider CoreLogic Inc., homes with second mortgages were twice as likely to be underwater, which makes them good candidates for short sales even if they don’t have delinquent loans because their mortgage debt is greater than the property’s value. “It’s very much like hostage situations”, states CoreLogic’s senior economist. The second lien holders have to be willing to Banks, facing too many pending foreclosures, are turning to short sales because their losses are about 15% lower than on repossessions. Whereas foreclosures can take years to complete as taxes, legal, maintenance and other costs accumulate; short sales take much less time. Holders of first mortgages are pre-approving short sales, streamlining the closing process, forgoing the right to pursue unpaid debt, and even giving some borrowers cash incentives to relocate.
The Home Affordable Foreclosure Alternatives program, known as HAFA, pays servicers as much as $2,200 and homeowners as much as $3,000 for completing short sales. The program recently changed to increase payments for second-lien holders who agree to release borrower liability, even increasing the maximum these second lien holders can receive from $6,000 to $8,500.