Short Sale Blog

Here is the latest short sale news at Seattle Short Sales. We assist hundreds of Seattle area homeowners with short selling their home and avoiding foreclosure.

Seller Pays 1/3 of Mortgage Balance Due, BECU waives $145k Deficiency!

Seattle Short Sales - Wednesday, October 03, 2012

This Kent, WA, homeowner was a single mother who also ended up supporting her brother and his family following her brother’s job loss. She was forced to leave her job because she could not afford the child care for her son, which meant that she could no longer make her BECU mortgage payments. She was worried about foreclosure. She needed to sell her condo - but its value had dropped to $56,000, and she owed over $210,000 on her mortgage.

Her only hope of avoiding foreclosure was to ask her lender to approve a short sale. She wrote a letter to BECU, explaining the hardships that had led to this financial situation, and also explaining that she would have no possibility of paying any deficiency balance so would need to have it waived - otherwise she would be forced to wait for foreclosure.

On August 28, BECU approved this Kent homeowner’s short sale. They required $65,765 minimum net proceeds following the sale, which represents less than one third of the $210,725 mortgage balance owing - and they waived her of ever having to repay the $144,960 deficiency balance! She is now free of any mortgage debt, and able to focus on her child and their future.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

How to Settle Your Remaining Mortgage Debt After Your Short Sale Closing

Ross Kilburn - Monday, July 16, 2012

Ideally in a short sale, you settle all of the debt once and for all. Whether you have two mortgages, a mortgage and a home equity line of credit, or a mortgage and a credit card lien, the goal is to get a full settlement and a waiver of deficiency rights by both lien holders.

But, sometimes, you can't settle all the debt in the short sale. Let's go over what to do if that happens. First, a little review on the mortgage settlement process.

First liens are pretty easy to settle in almost all cases

 In Washington state, it is pretty straightforward to get the foreclosing first lien holder to agree to a full settlement in a short sale. The reason is that by law, if the property were instead to go to foreclosure, the first lien holder would lose their right to pursue the borrower for the deficiency. So, therefore, they don't usually press too hard during the short sale for deficiency rights, as that might scare away the borrower and result in a foreclosure, which wouldn't do them any good.

Why junior liens don't just roll over and die

What about the junior lien holder? Well, in a foreclosure, the junior lien holder doesn't give up their right to pursue the borrower for the deficiency. So therefore, there is a good chance that in a short sale, the lien holder won't be motivated to waive their deficiency rights. As a result, in a short sale, most of the efforts are focused on finding ways to get the junior lien holder enough money so that they are compelled to fully settle the debt.

Some banks are easy to work with

Here is the good news. If your 2nd loan is with a large bank/servicer, such as Bank of America or Chase, there is a good chance that you will walk away with a full settlement. If you want to see what your bank will probably do, enter their name in our Short Sale Approval Letter Search Engine and review a recent short sale approval letter and you can review the exact settlement terms. You'll see that quite a few 2nds settle for the amount that the 1st is allowing them in the short sale. Also, many 2nds that require a cash contribution, only require a total of around 10% of the debt to settle.

Credit unions can be fierce 

Now the bad news. If you have a 2nd with a credit union, such as BECU or WSECU, they most likely won't do a full settlement in the short sale. Some Wells Fargo seconds also refuse to offer full settlements during the short sale, and require the borrower to work something out after the short sale closing.

A Wells Fargo second is relatively easy to settle after closing. If you have cash available, you can offer them around 20% of the unpaid principal balance (UPB) and have a very good shot at settling, all things considered.

Let's look at credit unions. Typically, they will be much tougher to deal with. They will be looking for more like 50% of the UPB to settle.

If you don't have cash to offer the bank, and you want to finance the settlement, then you need to expect the total amount to go up.

Strategy 1: Always send in a bankruptcy schedule with your settlement offer 

That being said, if the borrower looks terrible (financially) on paper, then threatening bankruptcy may convince the creditor to settle for less. But don't just verbally threaten to file BK. Get a bankruptcy attorney to work up a BK schedule and submit that to the lender for review along with the settlement offer. 

Strategy 2: Engage, but slow play the lender

Here's a tip. As a general rule, you don’t want to ignore the lender. They will just file suit. The suit will be their attempt to get a judgment, and the right to garnish wages. If you are the borrower, you want to keep talking to the lender…periodically…and consistently express a desire to settle the debt somehow. Surprisingly, a good percentage of the time, the lender gets tired of the offers going back and forth and the file just ends up in some sort of collection purgatory. That of course, is a great thing.

Strategy 3: "Move" out of state

The key is leverage. As mentioned, bankruptcy is the ultimate leverage. Moving out of state is also very helpful. Opening up a mailbox in a new state, and providing that as your new forwarding address is one possibility. Most lien holders will not go to the effort to get a local judgment and then transfer the judgment to the new state where they will be forced to hire new attorneys to collect. Usually it is in the client's best interest to just go dark if they are 'moving' out of state. 

Another thing to always do before settling with the 2nd. Review the reconveyance paperwork filed by the 2nd after the short sale. We have found a number of lenders mess up and fully reconvey their lien with "full satisfaction of the debt" language.

The bottom line is that there are a variety of highly effective settlement options and strategies available to every borrower that can be customized to their exact situation.

If you are in a situation where you need to settle your debt, simply call our office at 1-800-603-3525 for a free consultation with one of our attorneys.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

 

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