Short sale on first - Can 2nd mortgage lender sue us?

dbraun22 · Joined: 24 Sep 2007 Posts: 4 2.97 Dollars($)

Our 1st lender will work with us on a short sale but said that they will only pay $1000 towards a 2nd mtg balance of $46K. The 2nd lender (credit union) said they will sue us for the balance if we default. We have asked them to work with us and offer us any options but we have been told that there are no options other than to fulfill the obligation. Do 2nd lends normally sue for the balance? Do you have any suggestions as how we can resolve this - other than letting it go into foreclosure? We have a potential buyer but our realtor said they will low-ball an offer (no surprise in this market). How do we close without the 2nd lender being paid off?

dbraun22 · Joined: 24 Sep 2007 Posts: 4 2.97 Dollars($)

In addition to the above question regarding 2nd mtg and short sale I would like to have explained the difference between Foreclosure and Pre-foreclosure sale. We understand that it will be a negative on our credit either way. Does the pre-foreclosure take care of the 1st and the 2nd? Can the 2nd mtg lender sue us or garnish wages? We have vacated the property due to job relocation and can't make the payments any longer.

Jessica

Hi Dbraun,

Welcome to the community forums.

The second lender can sue you for the unpaid balance. The lender might seek a civil judgment in court due to which you will have to pay off the second loan. He can also garnish your wages.

Apart from a foreclosure or a short sale, what I can think of is a deed in lieu. But that depends upon your lender. A foreclosure takes place when you are delinquent on your payments and the lender wants his money but you're unable to pay it off. So, the latter decides upon a foreclosure where your home is sold off at an auction and the lender tries to get back his invested money through the sale. If there's any deficit or the sale price cannot cover the loan balance, then the lender can try to retrieve the money by seeking a deficiency judgment against you in court.

A pre-foreclosure sale on the other hand, is similar to a short sale wherein your sell your home a few days before the foreclosure auction takes place, but you aren't able to recover the entire loan balance through the short sale, and hence the name. Here also, the lender can go for a deficiency judgment to recover the entire balance.

The pre-foreclosure sale can take care of both the mortgages depending upon the market. It may happen that at times, it covers the entire first loan balance and a part of the second loan balance. Then you will need to pay the remaining second loan balance either by using your own funds or the lender might even forgive that. In that case, you may have to pay for the taxes on the forgiven debt as reported to the IRS by the lender himself.

Hope I was able to help you out. If you have further queries, please feel free to ask me.

Regards,
Jessica

Guest 0.10 Dollars($)

From what I understand the DIL will not work for us because of our 2nd lender. So far the only option we see is foreclosure. We just don't have enough resources left to continue paying the 2 mtg pymts. Even if we could take care of the 1st with a short sale we, again, have no way of paying the 2nd for the next 9 years and still live. I think we've exhausted all other options. Thanks for your time.

Samantha · Posted: Wed Oct 10, 2007 5:11 am Post subject: RE: consult attorney

Hi Dynees,

Whether it's a short sale or a deed-in-lieu, if the market isn't good enough, you won't be able to get sale proceeds such that they cover your entire loan balance. But I suppose deed-in-lieu will not be working just because your second lender is not willing to talk to you even and help you out. So, can you consult a mortgage attorney at this stage? May be he can help you negotiate with the lender and make things easier for you. The second lender said he'd sue you right? so you need to know the legal implications and act accordingly.

Hope this helps...

God bless you.

Samantha

Guest 0.10 Dollars($)

I am in the SAME situation. Except we have filed bankruptcy and it has just been discharged. We are behind on our first. Current with out 2nd because they gave us an extension for a few months (also credit union). I too am trying to sell the home but with the market I will come up short about 10-15,000. I thought both 1st and 2nd would possibly take a loss if a short sale is done. Does this ever happen or will the first always expect full payment. Can the two companies talk and negotiate? I am in a situation where I work for the company that has my 2nd mtg.... My only hope is they accept an offer and give me an unsecured loan for the balance. Yuk. Any thoughts or ideas?

helping_user

Hi Lisa,

Thanks for sharing your situation.

Usually whether it's a short sale or any other option by which you pay off the loan, the first lender needs to be paid first. Any reamining amount then goes to the second lender. Well, thye firts and second lenders can negotiate but I don't think the first would leave it out. This is brecause he'll lose money though he has been the primary mortgage holder. The second is actually subordinate and that's the reason things might not work the way you are thinking.

By the way, I have a question:

Is the first lender happy with the short sale proceeds, has he asked about deficiency? In case he asks for it, you'll have to pay it or else he will cancel the debt depending upon certain conditions.

You need to talk to both the lenders and find out what they have to say.

Thanks.

Guest 0.10 Dollars($)

y CAN'T THE 2ND MORTGAGE ALLOW YOU TO CONTINUE PAYING YOUR MONTHLY PAYMENT TO THEM EVEN THOUGHSOLD THE HOUSE AND PAID OFF 1ST MORTGAGE?

jameshogg

Hi Dave,

Welcome to forums.

Has the second mortgage lender charged off your debt? Is he hasn't done it so far, perhaps he's thinking of issuing a charge-off on your second loan. And that's the reason perhaps he's not keen on accepting the payments. By the way, has he sold off your debt to any collection agency? Ask him about it or else you'll be in trouble later on while dealing with the harassing phone calls from the collection agencies.

Thanks

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi DAVE.

Welcome to the forum. If there is any outstanding balance on the second mortgage then you need to pay it off. Otherwise the lender can come after you for the deficiency judgment or place a lien on your other properties. So contact with the second mortgage lender and try to pay him off with a repayment plan.

Best of luck,
Larry

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