I have no sympathy for second mortgage lenders who made loans at high interest rates during the boom years and then got even more greedy in the downturn by asking for too much money during a short sale. Those lenders have made short sales all around the country extremely difficult and stressful for many homeowners. The good news is that in California, and perhaps other parts of the country, there is relief in sight.
The secret is bankruptcy. As the law currently exists today, when a person files bankruptcy the second mortgage can be considered unsercured debt, even if the lender is on title. That debt can be wiped out if the value of the home is less than the first mortgage, which is often the case in short sales. This also prevents foreclosure and allows the homeowner to stay in the home. In high-priced California, this has a seldom talked about but extremely valuable tool to enable homeowners to avoid foreclosure and say in their homes, even in bankruptcy.
Once in bankruptcy, the overall debt can be restructured and a payment plan put into place to get the borrower in line with their debts. As part of that, once the secondary debt is paid off and the borrower is on track with their first mortgage, the second mortgage is eliminated. The potential is to save tens of thousands of dollars, if not more. While the bankers don't like this approach, I think it's brilliant.
I hear and read many stories from homeowners who try to conduct short sales only to have second mortgage lenders hold them hostage with unrealistic settlement amounts that make the transactions falls apart. The investors behind these loans refuse to get a reality check as to propetry values and end up hurting everyone in the process. Homes that go to foreclosure typically sell for 15-20% less than they would have as short sales. This hurts the markets and the banks in addition to putting the former homeowner out on the street.
So, the secret is bankruptcy. I highly recommend consulting an attorney for more details and to determine if your situation will benefit from this approach.
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Bryan Robertson, Broker Associate | T: 650.799.9951 | Email: bryan@serenogroup.com | Website: http://www.BryanRobertsonHomes.com |CA License: 01191946 | Sereno Group - Los Altos branch | 369 S. San Antonio Road | Los Altos, CA 94022
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