Chase Wants 20% as the 2nd Lien Holder

I wanted to use this post to share an example of how we all as Realtors can easily get caught up with what we think are changes across the board with some of the banks we are negotiating with short sales.

Recently while negotiating a file with 2 liens, Chase sat as the 2nd lien holder. Imagine my complete shock when the Chase negotiator stated they wanted no less than 20% of their balance to release the lien. He went on to say that anything less would close the file. I've heard that 'we'll close the file' remark more than enough to know it is 90% smoke and 100% crap. Sure they might at some point close a file but who the heck cares. A closed or denied file is just permission to step pasted them to someone above them.

But the point of this post is that unchecked and without previous experience of being lied to and manhandled by a negotiator I may have believed that 'oh my, Chase needs 20% to clear the second'! After doing some homework and calling to some passed negotiators I've worked with they confirmed that 10% will usually clear the lien and in tight offers they will accept as low as 5%. Additionally I found that my current file was in Tampa and that the negotiation team boasts the highest recovery rate of the Chase teams out there. So just in case you catch yourself in a similar scenario just remember when in doubt revert to the numbers. Is your offer better than the amount they would see if the property forecloses?

By the way when you hear them say it's okay if it goes to foreclosure that they have 'other means' to collect. Please don't panic or fall into this trap. There is nothing secret to worry about. They are most often referring to their right in certain states to go after the deficiency after foreclosure.

Second Lien Wants More Money!

Month by month the issues related to negotiating short sales grow and evolve. One month it all seems to make sense and then crazy stuff starts to happen. So what can you do to get your deal through when you are having some challenges with the 2nd lien?

It all goes back to setting your seller expectations. Over a year ago most 2nd liens wanted at least 20% to release the lien. Six months ago they seemed to work through with 10% or less and now we are seeing a turn back towards the 20%. And the 1st lien of course only wants them to get $2k for everything. I always like to fight and negotiate the heck out of the deal. But there are times when, as the negotiator/Realtor, that it might make sense to let the deal move to close even if it might cost someone in the transaction some money. (I don't even like typing this, feels like giving in but . . . sometimes it will make more sense based on your seller's needs and desires).

We solve this problem by setting our seller's expectations. During our listing appointments we advise the seller that we will work towards a closing that will not require them to bring any money to the closing table. We explain how hard we work towards this end but that they need to prepare for the possibility from the start that some money may be needed. I always suggest they try to save 3% of what the sales price might be. This seems to be the magic number for us at least. During our most difficult negotiations with the 2nd lien this amount would almost always make up the difference the 2nd lien wants with what the 1st lien is going to give them.

As for someone suggesting 'well the problem is they have no money' I suggest you stop assuming some of this. If an owner knows from day 1 they might need a small amount of money and for 3% of the sales price they can clear a hefty debt from their backs, it all starts to make sense to them. And given enough time most owners can find a solution to getting some of that money.

But still fight the fight, nothing is cooler when all seems lost and you pull it all out because of your great negotiating skills, contract knowledge, sparkling wit and amazingly good looks ;-)

Why Would any Bank Deny a Short Sale?

Let's get past the obvious one first here. If the initial offer is way too low then forget about it. Some banks don't counter back at all in these situations. Well maybe with a 'give us a better offer' but often with no details on the actual price the want. There are always exceptions but be prepared for some crazy responses.

A big issue is the second. We all understand or believe that if the 2nd lien holder doesn't take the measly pennies offered from the first they won't get a dime. So as Realtors we pound our all-knowing chests and spout out 'you're crazy it's this or nothing'. Well not if the 2nd lien has purchased their own PMI (Private Mortgage Insurance). Some lenders have done this on their loans. So if you are dealing with a second trust that is fighting hard, not necessarily a HELOC, then ask the question - Do you have PMI on this? If they say yes you can see why they are sticking to their guns. If it forecloses they will still get 20% back from the PMI insurer.

If this is the case and the 1st lien holder is holding tight on the amount then get on the phone/fax/email and explain the situation and that if they don't allow the amount to the 2nd they are looking for that they will not release the lien for sale.