I actually had have problems with second lien holders before. It feels like they are moving towards a more practical stance, allowing short sales to go through as you mention. However, I’ve been in transactions where the second lien holder effectively held the first lien holder hostage for more money. They squeezed the first lien holder and both agents to get the deal done.

Part of the need to price aggressively arises from the time bomb of the Notice of Trustee Sale. A few banks are unwilling to postpone the foreclosure auction date to allow a sale to complete. Most of the banks are understaffed which results in banks postponing based on a fire drill the week of the auction which produces a lot of anxiety for everyone. It is not uncommon to be on the phone on a Thursday for 3-4 hours negotiating your way up the food chain to convince the bank it is in their best interest to postpone tomorrow’s auction.

2. Pre-approved pricing

The bank may verbally agree to a price, but it is not an approved price. A short sale approval will only happen when the bank approves the terms of a mutually accepted contract and the distressed seller and the bank agree to the short sale payoff terms for the existing indebtedness. The bank issues an approval letter good for 30 days. If the listing has an approved price, then it means a previous deal failed. The next offer still has to go through the approval process all over and the bank may change the terms of the short sale payoff with the distressed seller. Again, it may just be the bank’s verbal approval which isn’t always meaningful.

3. Increased willingness to work with 2nd mortgage holders

I have never seen a problem with two lien holders. The second will generally accept 10% or $5k-$10k for a payoff. Securing no recourse on a second is more difficult when the second is not purchase money, is a HELOC or a credit union.

The Treasury’s Department incentives will not prove to be much incentive. The last I read the Treasury was offering $1000-$2000 per loan to the bank for a short sale. In higher priced markets, the incentive payment amounts to…..not a lot.

Working a short sale with two lien holders is not that difficult. Three or more is very difficult. The first lien holder probably will not begin talking until the third lien holder disappears. The first doesn’t want a third or more on the HUD. Private Party lending…..forget it. PP is difficult to negotiate.

5. Banks may have already completed their valuation

Most banks have a BPO performed and few get an appraisal. BPOs are $50-$100 and generally inaccurate. Appraisals can be $400-$700. $700 doesn’t sound like a lot of money when trying to recover hundreds of thousands of dollars. Banks are pinching pennies.

6. Loss mitigation representatives have been assigned

A few banks are notoriously slow to assign a negotiator and then negotiate. Understaffing is the biggest problem. Countrywide has trouble assigning negotiators in less than four weeks. A CW short sale can take 90 days to get approval.

7. Short sale negotiator has been hired

First, if the bank pays the non attorney negotiator, then there is conflict of interest between the seller and negotiator and the negotiator and the bank. The bank pays the negotiator to beat up the bank. The bank adds the negotiator cost to the loan deficiency to the detriment of the seller. Second, the buyer may have to pay the negotiator’s fee. There is some NAR and HUD information trickling out that buyer paid negotiator fees are a HUD and RESPA violation if they appear on the HUD. The buyer’s lender won’t allow the negotiation fee to be added to the cost of the house and financed. The buyer has to pay the fee out of pocket outside of closing. Some negotiators are trying to work their fees into the deal as inspection credits or something similar which sounds like lender fraud to me! Third, the option is for the agent to share their commission with the negotiator. Some states (I think WA included) preclude an agent from sharing their commission with non licensees.

Never pay anything up front to hire a short sale negotiator.

If the SS negotiator is experienced, then the probability of a successful close is about 70%. The 30% of failures are usually due to unrealistic