Negotiating Home Equity Lines During a Short Sale.

By
Real Estate Broker Owner with Bryant Tutas-Tutas Towne Realty, Inc BK607690

Jumping through hoops for youHi folks. If you negotiate Short Sales for a living then you know that a HELOC ( Home Equity Line of Credit) can be a real pain in the rear end. They usually want more money than what the 1st lien is willing to give them and they want the Borrower (Seller) to participate in their loss by making a cash contribution and/or signing a promissory note.

The Borrower needs to know this at time of listing. As a Short Sale listing agent you need to ask them at time of listing if their 2nd lien is a purchase money mortgage or is it a cash out equity line. If it was a cash out then the next question is; "Are you willing to participate in the loss?" If they answer "No" then there may be an issue. 

Now having said that, the Seller may not be in a position to participate in the loss. There could be a true financial hardship and they just don't have the means to bring cash or pay off a promissory note. If this is the case then you need to let them know that you will do your best but that there are no guarantees that the 2nd will cooperate. The 2nd may still remove the lien (mortgage) so the Short Sale can close but they will more than likely not remove the obligation for the Borrower to pay (note) without some kind of participation.

This may suck for your Seller but look at it from the lender's perspective. The Seller pulled cash out of his home and more than likely spent the money on consumer goods. The lenders know this. Should they completely forgive the debt when the borrower has a paid for Hummer sitting in the driveway? Would you? I don't think so.

So what can you do? If the Seller has the means then they should just participate in the loss. They spent the money so now give some of it back. Chances are they can settle for 20-30 cents on the dollar. That's a darn good deal. Take it and move on.

If your Seller does not have the means......Negotiate. Negotiate hard. Prove to the lender that the Borrower does not have the cash or the income to participate in the loss. Then show the lender where the "equity money" went. If it was used to pay medical bills and put food on the table then show this to the lender. It's my experience that most of the folks I help did NOT squander the money. They used it to either live on or they put it back into the property. The lender needs to know this. Lay it out and make the case.

The most important thing to remember is that it is the lender's negotiator's job to limit the loss as much as they can. They are paid negotiators and some are very good at what they do. Are you? If not then maybe you should not be handling Short Sales.

Your Sellers are depending on you. Please don't let them down. What say you?

Are you facing foreclosure in Florida?

Contact Bryant Tutas

Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.

Want to find out more? www.CentralFloridaShortSales.com

***I am NOT an Attorney nor do I play one on TV. Click the button below for my Bio.

The BIO for Bryant Tutas

Copyright © 2011 http://www.brokerbryant.com/ | All Rights Reserved

 

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Do NOT be foreclosed on! Avoid foreclosure. Short Sales DO close.

Want to find out more? www.CentralFloridaShortSales.com

***I am NOT an Attorney nor do I play one on TV. Click the button below for my Bio.

The BIO for Bryant Tutas

 

 Tutas Towne Realty, Inc handles Florida real estate sales, Florida short sales, Florida strategic short sales, Florida pre-foreclosure sales, Florida foreclosures in Kissimmee Florida Short Sales, Davenport Florida Short Sales, Haines City Florida Short Sales, Poinciana Florida Short Sales, Solivita Florida Short Sales,  Orlando Florida Short Sales, Celebration Florida Short Sales, Winderemere Florida Short Sales. Serving all of Polk, Osceola and Orange Counties Florida. Florida Short Sale Broker. Short Sale Florida.

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Topic:
Real Estate Best Practices
Location:
Florida Orange County Orlando
Groups:
Real Estate Rookie
Tags:
negotiating
short sale

Comments 59 New Comment

Rainer
56,307
Dennis & Terri Neal
RE/MAX, Big Bear

Thanks for the insight. I'm working on one of these right now and this will help.

February 22, 2011 02:50 PM
Rainmaker
260,268
Wayne B. Pruner
Tigard Oregon Homes for Sale, Realtor, GRI
Oregon First

Thanks for the information. The type of second does make a difference.

February 27, 2011 09:31 PM
Rainmaker
261,048
Paddy Deighan JD PhD
Paddy Deighan J.D. Ph.D

It has been my experience as the managing attorney for a nationwide netwrok of attorneys that the 2nd lien holder is far more likely to sue on a short sale than the first lien holder.  Perhaps because they received little, if anything, on the short sale.  I ahve spoken with bank attorneys and they have not provided any answers

February 28, 2011 05:40 AM
Rainmaker
1,080,090
Bryant Tutas
Broker/REALTOR, Tutas Towne Realty, Inc
Bryant Tutas-Tutas Towne Realty, Inc

I agree Paddy. Also, they are usually just releasing the lien and not forgiving the note.

February 28, 2011 07:24 AM
Rainmaker
124,583
Matt Robinson
Pensacola Real Estate (850) 292-4000
ERA Emerald Coast Realty

Bryant, great post.  I have found, as I'm sure you have, that if you negotiate hard enough you can get just about any lender to give up on the contribution from the seller if the hardship is legitimate.  However, there are certainly some situations (HELOC's and MI come to mind) that are more difficult than others.  That's where it pays to have an agent with short sale experience, and not one who just went through a CDPE class.

September 21, 2011 11:25 AM
Rainmaker
1,080,090

Bryant Tutas

Broker/REALTOR, Tutas Towne Realty, Inc
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