New HAFA rules are forcing home sellers to negotiate directly with subordinate liens, or, in common terms, second mortgages, on their own, according to Bankrate.com. The way the rules are written, there is a financial incentive for the 2nd mortgage to settle and release the lien, but the onus of getting assurances that the bank will settle rests on the borrower, which seems incongruous with the intent of the law. If the law is that the bank gets $3,000 from the government to settle, then it is the government who should be getting written assurances that they will indeed settle, not the borrower. The article points out that distressed sellers are already bleaguered and beaten up and in no condition to play hardball with another bank.
I agree. Distressed home sellers ought not do this on their own. They need an advocate, and a 3rd party with experience is very likely going to get a better result than a beaten up home owner. This is what we do, but rather than make this post a commercial I’ll also add that here in New York, the attorney should be on the front lines dealing with the 2nd mortgage as well as the first. The attorneys that we have on our team are excellent; the sellers can rest assured that the arrangements they help negotiate are the very best that can be agreed to. They also read the “fine print” with a fine tooth comb. The devil is in the details in these things, especially in New York.
All short sale agreements from lenders should be in writing, and all short sale agreements from lender should specify that they will not go after the borrower for the difference after closing. Anyone can get a short sale with no assurances of financial security after the closing. It takes a professional to ensure that the seller’s obligations in a short sale end at closing with no residual debt. That is our job, and that is how we do our short sales.
Doing a short sale on your own invites peril. We have done dozens, and that puts you in good hands compared to the guy in the mirror.
J. Philip Faranda
New York Short Sale Team 
[…] New HAFA rules are forcing home sellers to negotiate directly with subordinate liens, or, in common terms, second mortgages, on their own, according to Bankrate.com. The way the rules are written, there is a financial incentive for the … Home loan rates […]
Interesting post! Thank you.
I agree Phil. There is terminology that homeowners may not be familiar with such as “charge off”, “deficiency”, “3rd party collector”, which may end up hurting them in the long run. It is important that homeowners seek the help of professionals so that they may better understand what it is that their lender is trying to accomplish in a short-sale. We all know what the homeowner is trying to accomplish in a short-sale but the intentions of their lender may not be clear and this is where the potential for future liability lies.
How a homeowner can go it alone when negotiating part of a short sale is beyond me. Talk about an unfair advantage. I believe a 3rd party attorney should represent the sellers… ALWAYS!!
The banks will try to get away with whatever they can. We see it with loan modifications we see it in short sales. You need someone negotiating on behalf of a homeowner to get the best terms. I would imagine many homeowners negotiating their own short sales probably do not even know what to look for….
The only hope against foreclosure is loan modification now. Still someone under debt then the last option is short sale.
The highest risk for distressed homeowners is a deficiency judgment after the release of the liens after a short sale.
HAFA has protocols for dealing with the release of the first trust lien after a short sale.
Second trusts are not bound to HAFA rules, so depending on your state you are in the release of a lien does mean the lender will release the note/debt. Depending on the lender they may take a partial payoff $3000, 10% of the loan balance, or some other amount to release the lien letting the sale go through.
The sellers are often left with a decision to make on proceeding to settlement and negotiating with the lender after settlement or filing for bankruptcy. It is always wise for a homeowner to consult an attorney on their options.
Good Post.