6/30/2010

There Ought To Be A(nother) Law

Short sales have been here and are here in large numbers for quite a while into the future. Many lenders are getting better in certain respects about speeding up their responses, even if it's not a HAFA program which does have numerous requirements, in their regular short sales. There can be many aspects and issues in a short sale depending on the bank or servicing company involved, if a notice of default has been filed, if a notice of sale date is already set, if the HOA dues are delinquent, how many lienholders there are, to name a few.
But what is one thing that's going on a lot? Second position mortgage lienholders who are refusing to accept the payoff from the first, and decide instead they would rather have their investors get nothing rather than something. So typically these 2nd lien negotiators, who are probably looking at a computer screen bearing instructions from their bosses, are allowing the entire property to go into foreclosure over a failure of $5,000-$10,000. Many do not want to deal with the HAFA program, due to the few thousand dollars obtainable under that program, nor even 10% payoff offers from the first, so their response is to say they will take nothing rather than something, and let it go into foreclosure, presumably under the belief they will be able to come back and get it later. What many servicers may not understand is that in certain states, such as California, they have no deficiency rights after foreclosusre when the loan was original purchase money mortgage on a principal residence.

And so what do we need? I know we have plenty of laws, but we need another one. We need another law that prevents junior lienholders from obstructing the successful completion of a short sale:
"...passing legislation barring junior lien holders from preventing a short sale and forcing a foreclosure would be wildly beneficial to the heart of America. It would keep homes occupied, free up capital, curb the slide in property values and it wouldn’t cost the taxpayers, or anyone else, a dime."
Also, as Lawrence Belland says on Foreclosure Radar:
"... in 37 other states the investor could accept the offer and still have the right to pursue the deficiency. That’s why forcing the foreclosure doesn’t make sense to me; it defies logic."
Second lienholders always knew they were just that, in second position. They were all too willing to make loans, and others have been very willing to buy them up, based on the continuing inflation in the subprime market. They just don't like to face reality now.
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