Short Sale with More Than One Mortgage

In some states it may be rare, but here in Florida the majority of my short sales seem to be with multiple mortgage companies. 

I see home owners with 1, 2, 3, and even 4 mortgages on a property. I see 80/20s, 85/15s, 90/10s, 95/5s, and all those varieties with Home Equity Lines of Credit on the house as well. 

How do you short sale with more than one mortgage? 

How do you short sale with a Home Equity Line of Credit (HELOC)?

The answer is simple:  The same way you short sale with just 1 mortgage.  All documents get submitted to all lenders involved.  The 2nd or 3rd lien holders are typically offered a "token" amount to release their lien against the property, which they almost always take, and we get the approval. 

Now it's not always that easy.  Some secondary mortgage companies try to make it much more difficult by refusing to take the lower amount, but that often gets into our negotiators ability to convince them of their best interest. 

Another possibility with multiple lenders in a short sale is the promissory note.  I wrote about it back at the beginning of 2011:  Promissory Notes with Short Sales.  We see this with local credit unions like Vystar or Navy Federal.  They will often agree to allow the short sale but require the home owner to sign a promissory note for 10% - 30% of the remaining balance.  Typically, these promissory notes are spread over 10, 12, or 15 years at 0% to 3% interest. 

Example:  Navy Federal is owed $100k on a second loan.  They get $8k in a short sale, leaving them with $92k that they have to write off.  They want a promissory note for 20% of the balance, which is $18,400.  Payable over 12 years at 0% interest = $128 per month for the next 12 years paid by the short selling home owner. 

Is that the end of the world?  No.  That's a gift!  And all of our clients see it the same way.

Having more than 1 mortgage and being upside down and needing to sell shouldn't worry you too much.  If you gotta go, you gotta go, so list the property with a Short Sale Specialist, hire a Short Sale Attorney, and get ready to get it sold!