This is a disturbing trend that has gotten far worse this year.

It is getting increasingly difficult to get short sales through when there is a first and second mortgage.  What is going on?

The second lienholders, who will usually get nothing in a foreclosure, have often started demanding more funds in a short sale transaction.  It was quite common to give just $1k-$5k to the second lienholder for a while.  This was because the second lienholder, who realized they would not get anything in a foreclosure sale, would take it to cut their losses. 

Now second lienholders are playing unbelievable games.

We have one right now where the second lienholder (M&I Bank) will not take the $3k we've structured the deal for them to get.  But it gets better.  They refuse to give us any kind of letter or written documentation about what they will accept.  They have changed the number multiple times!  Every time we think we have found a way to get the deal to the number the negotiator has thrown out....the target changes. The negotiator is careful not to give the number they will accept in e-mail.  He calls and gives a verbal agreement number.  This is truly a seller with a profound hardship, the first lienholder has started foreclosure proceedings, and there will be nothing left for the second lienholder in a foreclosure sale because the first lien exceeds today's fair market value of the property.

So why would a bank refuse to act on a solution that gets them some money back, as opposed to none which is their only other option?

We've seen recently a "too big to fail" bank, Chase, (second lienholder) reject another contract where the first lienholder was getting totally paid off (just barely) and they were getting around $35,000.  The seller was filing bankruptcy if this did not happen. Once the deal was structured to get Chase $35,000...Chase raised the approval amount to $40,000.   Chase killed the deal because if they were taking a hit, the first lienholder was too.  What??????  In a foreclosure there won't be anything left for Chase at the end.  Why would they walk away from $35,000 just because the first lienholder won't take a hit too?  

Just heard another story where first lienholder approved a deal giving $3,000 to GMAC, the second lienholder.  GMAC said forget it...they would not even consider sending it to the investor unless they got at least 20% of the balance owed.  How about this GMAC?  You will not get anything in a foreclosure sale.  There won't be anything left!

These stories are rampant now.

What is really going on????  I used to think it was because banks were just making stupid financial decision.  Now I'm convinced it's something more sinister.  Would banks really be making stupid financial decisions like that if there weren't big things at play behind the scenes?

How does credit default insurance play into this?  How do mortgage backed securities play into this?  How do servicer contracts play into this?  How does the resale of a note play into this?  How do PMI companies play into this?  How are bailout funds and the myth of "too big to fail" playing into this scenario?  Why isn't anyone looking into this????

You have homeowners with hardship situations that are being foreclosed on every day because the bank makes more money by foreclosing even though short sales or loan modifications should be far better deals financially!  So what is happening behind the scene that is causing banks to make these seemingly stupid decisions?

In the current environment we should be having greater success with short sales...not encountering new obstacles.  Foreclosure is an offense with a punishment that lasts for years and years.  Moreover, it doesn't just punish the unfortunate homeowner who fell upon hard times...it punishes all of the neighbors and community as a whole.  Foreclosure further drives down the values which will inevitably lead to a greater number of foreclosures in the future since it will make it impossible for more people to get out of their homes when they need to.  When so many should be preventable...why are they still happening?

We are starting to get more and more calls from agents across the country who read our blog and are encountering a lot of the same types of issues.  Please keep them coming.  We need to get the real stories out there.

If you are in our area and facing this type of situation, call us if you would like an honest evaluation of what we think about your situation.  We will let you know upfront what we expect.  And please remember, no one can promise you success in foreclosure prevention through a short sale.  That being said, the chances are great in most situations if the short sale is handled correctly.