Difficulties of Second Mortgages When Negotiating Short Sales

In the not so recent past a first and second mortgage when purchasing a property was very popular.  Negotiating short sales with a second mortgage comes with some extra challenges.  These challenges multiply when the mortgages are with different lenders.  Add a buyer who will need loan approval and you are walking the ultimate tight rope.

Many lenders policies and procedures have been changing rapidly regarding short sales. We are even seeing banks that were holding first and second mortgages split and become separate entities.  Short sales can be tricky simply dealing with one lender.

The challenges multiply with each bank you add to the mix.  The biggest challenge is meeting the time lines of both the first and second mortgage.  The amount of time it takes to get a short sale package successfully through is different for each bank.  Once the package is approved you normally have an expiration date for that approval.  With two mortgages to deal with, you need both banks to approve the package before either acceptance expires.  It is very common for one to be ready to complete a package before the other even assigns someone to work it.  I believe you can see where I am going with this.  

While a short sale negotiators’ ability and experience can not a guarantee success, you will notice that some peoples’ success rates are very impressive.  There are things that can be done to expedite the process and provide a much higher success rate.

When negotiating a short sale with a second mortgage and a buyer requiring a loan you add another approval to the mix.  It is common for lenders to come back to a buyer days before closing and reveal that they aren’t ready to close yet.  Bank underwriting seems to be moving at a snail’s pace these days and have little regard for closing dates.  This can be disastrous when you are trying to stay within two other banks time constraints.

It is now becoming common to see the second mortgage holders refuse to write off their mortgage.  Some banks are requiring  sellers, without regard to their financial strength, to take a signature loan for the remaining balance.  If the seller is unwilling to accept the terms, they do not approve the short sale.