If you can no longer afford to pay your mortgage, you can avoid foreclosure by short selling your home. In a short sale, the house goes on the market, and once it is sold, the seller gives the money to the lender. The sale falls short of the full amount owed on the mortgage, giving it its name. If you have two mortgages instead of just one, a lender might be reluctant to go through with it, or the process could just be more complicated. Here are some key points to consider about a short sale with two mortgages:
Getting Short Sale Approval
Much like the first mortgage, a second mortgage gives the lender the same sort of power. The second mortgage holder has the right to approve the short sale if this is what you are considering. This isn’t that big of an issue if a single lender has both debts, but it could get tricky if two different lenders want the proceeds from the short sale.
Negotiations
Short selling requires sellers to sell for less than the entire amount of debt that is owed. The first mortgage holder will be paid completely before anything else makes its way to the second mortgage. In a lot of cases, this means that the holder of the second mortgage will receive nothing. The second lender often wants something and won’t cooperate unless the main lender agrees to share the money. You might need to get help from a real estate professional when it comes time for these negotiations.
How To Get Started
To begin, you need to get in touch with both lenders and figure out how best to apply for the short sale. In some cases, there may be an automated application process. In the event you are turned down, look for someone else at the bank who will approve you. Approval is only conditional until the point where you actually receive an offer. Should the buyer not offer enough money, both of the lenders can turn it down.
Deficiency
In a few states, your lender can approve the short sale and then turn around and sue you if there is any unpaid debt unless you have previously received a written agreement that says they won’t.
Qualifying Hardship
A borrower that wants to do a short sale will need to provide what is known as a hardship letter. This letter will detail the exact reasons why the borrower can no longer pay the loan in full. This includes issues such as divorce, long-term joblessness, major health problems and other such events, which are all acceptable. If the home has two mortgages at different banks, both of these entities will need to accept the letter of hardship to allow the short sale to move forward.
Comparative Market Analysis
Lenders will want to prevent fraudulent activity where a homeowner tries to sell low in order to get out of the loan while then buying the house back at a lower price. Both the secondary and the primary lenders will ask for proof that the price of the sale reflects that of the market value of the home. A CMA, or comparative market analysis, will outline the value of the home. This can be put together by a real estate agent.
Patience
A short sale is similar to a traditional sale in the way a buyer will make an offer on a property and, if the seller is happy with it, the seller will accept it. With short sales, the lender has to be happy with the offer before they accept it and sign off on it. If both the first mortgage and second mortgage are with different lenders, both of them have to agree to the offer. Then, they’ll need to negotiate how the funds from the sale will be shared between them. These types of short sale negotiations can take a long time.
Other Options
If the borrower can manage, another choice is to keep making the payments until the market improves, usually through renting out the house or bringing in a roommate. There are also ways to refinance if you go through the Home Affordable Refinance Program (HARP). This can be applied for with two mortgages, but the process takes a bit longer.
