When the Freddie / Fannie 6% $6000 Short Sale Payout for Second Lien Holders Works Against Them!
If you’ve negotiated enough short sales in Massachusetts and New Hampshire you’ve seen the Freddie Mac / Fannie Mae stalemate with a second lien holder. They have an interesting philosophy. All second lien holders are capped at 6% or $6000, whichever is cheaper. Now, initially, this wasn’t a huge problem if the second lien holder didn’t agree to the payout and wanted more money because you could have the buyer, seller, agents, etc., do a POC on the HUD for any difference. So for instance a Chase primary Freddie Mac Loan gets approved and then offers Citizen’s the $6000 to approve. Well if Citizen’s is owed $85,000, their noses might be a little bent as traditionally second lien holders get somewhere in the 10% range and certainly can hold out for more and there starts the stalemate. Before you could just have a seller contribute the difference, so $2500 to Citizen’s on the HUD so they could get their 10% if that’s what they were demanding to release the lien.
Interestingly, Fannie/Freddie seems to have clamped down and via servicer negotiators has stated on no uncertain terms that NO ONE, including the buyer, seller, agents, or anyone else can contribute to the second lien holder and the second lien holder MUST agree to the 6% or $6000 or they will “close the short sale file” – Seems a bit harsh to me. I mean aren’t we in a position in this country for a few thousand dollars we could settle with BOTH lien holders? So Freddie / Fannie would RATHER foreclose on a property than let a seller contribute to the second lien? No, this doesn’t make any sense.
So, this in essence can really screw the second lien holder. We aren’t in the golden state either. Massachusetts and New Hampshire are RECOURSE states so these lien holders CAN come after us for any remaining debt. I’ve seen lien holders waive their deficiency rights for $500, but with this new policy by Fannie/Freddie it FORCES homeowners to shut up and not fight for approvals which release them of any further debt. It’s a pretty crappy situation for the homeowner…but what about Freddie/Fannie themselves?
Now before you start to think that they’ve really set themselves up nicely not to fail, keep in mind that if the two lien holders don’t come to an agreement, the property likely will end up in foreclosure. Does that help Freddie/Fannie investors? No of course not, but this week I had a very interesting thing happen. My second lien holder CITI only wanted $4200 to release. I was pretty excited. I had $1800 that we could NET back to Freddie. The offer was a bit low and of course there is an impending foreclosure. I thought, “Hey Freddie will jump on this extra $1800,” and maybe my homeowner won’t need to sign a prom note or bring extra cash to closing **TIP** Don’t ever tell short sale sellers that if they do a short sale, they won’t be required to bring money to the table. You’ll shoot yourself in the foot. Lately there is a trend from Freddie / Fannie to ask seller for prom note or cash to approve the sale *** Ok back to my story. I went back and let Freddie know they could have more in their NET and do you know what I was told? Nope, the $6000 is flat. That’s what we’re giving and we don’t care if the second lien holder requires less. Ummm???? What????
So Freddie wasn’t netting enough from the buyer’s offer not to ask my seller for Cash or a Promissory note. There is an extra $1800 that is now freed up to use towards that NET amount so my cash strapped seller doesn’t have to bring extra money to closing right? BUT NO. Let’s just throw the $1800 at Citi who didn’t require it.
Yes, that’s what we’re dealing with folks. This is the current state of short sale politics in our country that is losing investors millions. You could have added extra to your NET, but you make ridiculous policies and therefore you lose, the homeowner loses, your investors lose, and we stay in this climate for a long time.
Your Massachusetts and New Hampshire Short Sale Closer!