Joe Short Sale

We have a house in Bradenton, Florida that was purchased as a primary residence at the height of the price escalation. Due to some job changes and income changes, we can no longer afford the payments and we are trying to do a short sale as you can imagine the house is worth a lot less than we owe. The 1st mortgage is with US Bank and we have an equity line with Wells Fargo. After several calls over serveral months and little or no help from US Bank, the latest is they will not do a short sale as long as there is another lien on the property. We called Wells and they said we could try and settle the equity line which they will usually do for 60 – 80% of the balance but we don’t have the money to settle for that much. Rep at Wells said they have never heard of a 1st mortgage holder not allowing a short sale because of a second mortgage or in our case an eqity line.

We are currently three (3) months behind with US Bank, not behind with Wells. We tried on several occasions to discuss alternaties with US Bank before we got behind but they would not discuss anything, we feel because we were not behind at that time.

Are there any alternatives other than just letting the property go into foreclosure?

If US Bank forecloses what are the chances that Wells will get anything?

Can either of the lenders come after us for the remaining balances on either loan?

I can understand the lenders not wanting to loose any more than they have to but foreclosure seems a lot worse for everyone because there is no doubt the property won’t be maintained, will look terrible when it is tryig to be sold and will bring a lower price than if they would allow us to maintain the home during a short sale, which we are still doing, and hopefully get as much value out of it as we can.

US Bank’s attitude towards this situation really just doesn’t make a whole lot of sense unless there is something “behind the scenes” that we don’t know about that benefits them more, maybe some additional amunition for more “bail out money.”

Joe

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Hello Joe,

When the first mortgage is accepting less than a full payoff, the first mortgage will limit the amount that the second mortgage is permitted to receive on the short sale.  Normally that is around $1,000 to $3,000, so the 60 to 80% that Wells quoted indicates they are in la la land. 

Florida is a judicial foreclosure state and in a few months Bank United will probably hire a foreclosure mill law firm and seek to serve the homeowner with a complaint in foreclosure.  This is, in my opinion, where most homeowners miss the boat.  The homeowner should make certain an answer is filed.  Once an answer is filed, then the lender realizes they will not obtain a quick summary judgment and the legal fees will rise dramatically from the flat $1,200 fee that lenders normally pay the foreclosure mill attorneys.  There are attorneys that can help the homeowner to answer the foreclosure complaint for somewhere around a $500 to $750 cost.  This in my opinion is a worthwhile expense as it increases the likelihood that a loan modification or short sale will be accepted.

When a first mortgage lien is foreclosed, the first mortgage must be paid in full before the second mortgage receives $1.  The likely scenario in this market is that the first mortgage forecloses and the second gets nada.  In Florida, the first mortgage has a right to a deficiency judgment which is rare, but their right to the deficiency doesn’t expire at the time that the foreclosure is completed.  The first mortgage lender can seek a deficiency years later under common law.  The second mortgage may have its lien extinguished upon foreclosure of the first, but can bring a separate lawsuit based on a cause of action for written contacts which essentially means that within five-years of failure to pay, the second can serve the consumer and obtain a judgment which may lead to garnishment of wages or bank account.

I’d be firing off Qualified Written Requests to examine every aspect of the loan.  On a personal note, I purchase short sales in Florida and as part of the short sale processing my loss mitigation company completes a forensic loan audit free of charge.  Quite a few of these mortgage loans are eligible for the TILA’s extended rescission.  This means that the lender is without a security interest with which to foreclose.  That’s pretty scary if you’re the lender.  In addition, the Florida constitution provides for an unlimited exemption from levy/execution of the consumer’s primary residence.  In some states, a mortgage can be rescinded and the borrower still owes the tender balance and the lender can obtain a judgment that attaches back against the property.  Not so in Florida.  Upon a valid rescission under the TILA, the borrower would own the home free and clear of the debt.

If you have not refinanced the first mortgage loan then the first mortgage would not be subject to an extended rescission right.  Additionally, the TILA has a one year statute of limitations if the homeowner files the lawsuit.  However, TILA violations can be raised defensively after one year, as in the case of foreclosure defense, and the TILA provides a statutory award plus attorney fees. 

You ask: “[a]re there any alternatives other than just letting the property go into foreclosure?” 

The answer (in more ways than one) is yes.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.