The third position lien was an old credit card judgment. It had to be paid off to sell the house. The first mortgage was only willing to pay $3,000 to any second mortgages or liens. The second mortgage wanted $4,500. The credit card judgment wanted $5,000. How were we going to get the extra money for them?
We had to escalate the file with the first mortgage. We told them that they had two options.
Option 1: Pay the first and second mortgage and net X.
Option two: Foreclose and lose an additional $15,000. I have a calculator that puts all these numbers together. In addition, I have the proof to back it up. Here is an example. There was recent short sale where the first mortgage stubbornly refused to give enough money to the second mortgage. As a result, they lost around $45,000. I found out about this house because I met the first buyers at an Open House.
They were trying to buy a short sale and were offering $272,000. The first mortgage was owed $337,500. The 2nd was $70,000. The listing agent submitted the short sale offer to both companies. The first said they would only pay $1,000 to the second mortgage. The second mortgage wanted more. The short sale dragged out for months. Finally the buyer paying $272,000 walked. The house was put back on the market. Meanwhile, home prices had dropped.
Now buyers were only willing to offer around $230,000 for the home. The house ended up selling for $229,000. As you can see, the first mortgage was greedy and wouldn't offer enough money to the second mortgage. As a result, they lost around $40,000. Was that a smart business decision? I don't think so.
Now, back to my short sale story. I sent this and several other similar examples to the people at the first mortgage. They agreed to pay the second mortgage $3,000 and completely pay off the credit card judgment. The buyer agreed to pay the extra money the second mortgage wanted. We were able to get everyone to agree and close the sale. The seller was able to wipe out over $70,000 in upside down debt and move on with her life. That is an example of how you solve the multiple lien problem with short sales.