Who takes the discount in a Short sale when you have a second mortgage?

Question

100% loan, 80% first, 20% second. The home is worth about what the 80% loan is.

Who takes the cut on a short sale? Second lien holder, first? both?

Answer 1

I use to work in the Short Sale Dept for citi financial mortgage for about 5 years aND I am also responsible training the president of the National Short Sale Center. I was their 2ND employee (the only employee at the time) ever hired. They now have about 13 employees. They are a great company who helps homeowners.

The first mortgage will dictate how much they will allow to go to the 2ND mortgage. Generally its between 1k-5k. Keep in miND a few things. Short Sales are all about negotiations!
The 1st will tell you they will allow $1500 for the 2nd, then when you call the 2nd mortgage they will say they will not take anything less than 5k. Try to get both to settle on the same amount. I have negotiated 2nd liens from over 100k down to 2500 before. The 2nd doesn't want to take you to foreclosure because there is no equity in your home. If they foreclose on you they would need to pay off the first lien, pay a Realtor to relist it, maintain the property until sold, and foreclosure fees are around 40k. Its in their best interest to take a Short Sale.

Best of luck. send me an email if you need any further assistance.

Answer 2

A short sale can only happen if the second note agrees to take a cut, if they do not agree to a short sale then no short sale will occur; because a short sale unlike a foreclosure will not remove the second note from the lien on the property

so if the property is only worth 80, the value of the first note the second note most likely will not sign off on the short sale because they loose, might as well let it go to auction

Answer 3

Second lienholder first, then the first if there's not enough equity to cover both loans.