A great question. This question was recently asked of me and I thought I would share the information with you all.
The Jr Lienholder in the past has been very difficult to deal with. However, recently, most Jr Lienholders are very cooperative in the short sale approval process. This is due to new laws (state and federal) and incentives being offered to the Jr Lienholder for their cooperation.
For example, the jr lienholder currently can be offered up to $8500 through the HAFA short sale program (if the seller qualfies for the program). In addition, there is typically an unspoken threshhold which the Sr Lienholder is already willing to go to offer a payoff to the Jr Lienholder. So, it is safe to say that there is already some money there for the Jr Lienholder, most of the time, not always.
Then you have the Jr Lienhodler from hell, like Franklin Credit. I must say, it took over one year (and I’m assuming some personnel turnover) to get them to approve as Jr Lienholder on a file we closed several years ago. Needless to say, things with them have not changed. I was contacted by an agent from So Cal who was going through a very similar and painful experience with Frankline Credit – their tactics have not changed. They are a mostly non-negotiable, non-cooperative, non-customer friendly credit collector. I don’t mean to sound so negative about them, but these are the facts. If things have changed with them and I am wrong, please, please, please correct me.
So, how do you prepare a buyer going into a short sale situation with a jr lienholder? In our Short Sale Offer Submisison Addendum, we let the buyer know that there may be a possibility that they may be asked to pay any additional fees which the Sr Lienholder does not approve, as long as the Sr Lienholder approves of the buyer paying those fees. That normally works out fine. When we are negotiating a short sale, we always begin negotiations with a small amount to the Jr Lienholder ($3000). That is traditionally the standard amount most Sr lienholders will approve to the Jr Lienholder. From there, if the Jr requires more, we submit that to the Sr lienholder first, then if more cash is required, we go to the buyer. Buyer is lready prepared, so no surprises there.
However, most Jr Lienholders that I am dealing with will now accept the standard $3000 payoff. Not always the case, but we can usually work something out if they require more.
Note also that SB 458 prohibits the seller from being required to make a contribution to the sale in order to attain an approval. It is the seller’s discretion as to whether they are able and willing to contribute In most cases the seller is not in a finanical position to make a contribution.
So the above are a few ways in which you can prepare yourself as a buyer, or buyer’s agent when representing a buyer in a short sale, and contending with the Jr Lienholder. If my colleagues out there have any additional advice to offer, I’d be happy to hear about it!