What happens to the first and second mortgages if there is a deficit in a "short sale"?
All short sales create a deficit – by definition they sell for less than the mortgage balance. As the first mortgage is superior, the second mortgage would bear the full brunt of the shortfall until exhausted. So that makes the potential for the 2nd mortgage holder accepting a short sale far more difficult unless the amount of the loss is reasonable.
However, even in a foreclosure, the second mortgage is fully exposed to the loss first so it all depends on how reasonable the holder of the second mortgage wishes to be. If you have an actual purchase a a specific price, the 2nd mortgage can at least determine the loss and compare it to what would be expected to be realized, if anything, from a foreclosure, offsetting the expenses and time delay of the foreclosure.
Short sale by definition agrees to release open deeds of trust/mortgages in exchange for the purchase price.
Might get a 1099 for taxes would be about it.
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First, with two loans, it makes it even harder to get the second lender to take pennies on the dollar, then if the second was a home equity line of credit they will send it into collections
beware many lenders are now requiring home owners to sign a promissory note on the difference
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If there is a second, then it’s possible that the short sale will not go through. Typically when there is a second, the first wants all their money, since they will probably get it all if they foreclose – so there is no incentive for the first to take a short amount when there is a second.
So, ALL of what is short must come from the second – that’s who you really need to negotiate with as a seller. "What happens…" is whatever you negotiate with them.
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All short sales create a deficit – by definition they sell for less than the mortgage balance. As the first mortgage is superior, the second mortgage would bear the full brunt of the shortfall until exhausted. So that makes the potential for the 2nd mortgage holder accepting a short sale far more difficult unless the amount of the loss is reasonable.
However, even in a foreclosure, the second mortgage is fully exposed to the loss first so it all depends on how reasonable the holder of the second mortgage wishes to be. If you have an actual purchase a a specific price, the 2nd mortgage can at least determine the loss and compare it to what would be expected to be realized, if anything, from a foreclosure, offsetting the expenses and time delay of the foreclosure.
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depends on your state, your loans (purchase money, etc) and the type of foreclosure process.
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