Wired Funds Just In the Nick Of Time

I have a primary mortgage with US bank worth 340k and a heloc with Bank of America worth 60k. 

B of A has already “written my loan off” and I see it on my credit (credit went from 775 to 623).   BoA hasn’t foreclosed yet – they said they would accept a short sale guaranteeing them 5% of the sales price of my home.  Also, BofA said they would settle with me for 26K or 444 per month for 5 years. 

There is so much information out there I don’t know what to do. US Bank has authorized a short sale – I know the value of my home is around 320k…

I am in Illinois, can either bank come after me for liability on a short sale? 

I am deathly afraid of a 1099 which I cannot afford.  To top it all off, I just got a civil service job and have to do all this from Europe (where the job is located). 

My house will go on the market for short sale in the next two weeks.  Additionally, I don’t quite know what  a write off is.

Thanks so much for any help, it’s amazing that this service is free.

Nick

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Hello Nick,

Yes, either or both banks can potentially come after the borrower after a short sale or after a foreclosure.  However, in a short sale the homeowner is able to negotiate to avoid the deficiency.  It’s extremely doubtful that US Bank would permit BofA to receive $16k to $26k if US Bank is also taking a short.  

While we’re on the subject of how much BofA is permitted to receive on a short sale, let me put a plug in for a solution that I bring to the market.  A mortgage in second position is generally limited to a maximum of $3k when the first is accepting a short payoff.  This means that if a second position lender provides a short payoff letter any higher than $3k then the short sale will be rejected by the first position lender because the first position lender can foreclose and wipe the second mortgage clear of title.  So, how can the second mortgage get $26k?

The borrower can make a payment in advance of $23k to the second lien and then the second can provide a payoff letter for $3k.  That would work, but most borrowers going through foreclosure don’t have an extra $23k sitting around.  Here’s my solution.  I wire $23k to the escrow agent who holds it with an agreement to pay the second lien the $23k upon closing.  Then, the second lien provides a payoff letter for $3k.  The short sale closes and the borrower is free from both debts.  It’s a nice solution for everyone.

Read: Deficiency Judgments Are Real, I’ll Estoppel If You’ll Estoppel, & Render Unto Caeser

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.