Re: “shorting second” deal - Posted by B.L.Renfrow
Posted by B.L.Renfrow on October 08, 2003 at 17:06:10:
Your idea of how to approach the junior note holder is flawed. First, from what you posted, you are not buying the first, you are planning to pay it off. That means the note in second position would then become the first. To tell the junior lienholder you are “buying the note”, when you aren’t, won’t gain you anything. You apparently took title to the property, but the first is still owned by the original note holder.
Second, under federal law, the junior lienholders have the right to bring defaulted senior notes current in order to protect their position. Therefore, telling the second that you “would continue to foreclose” if you did own the first (which you don’t) is incorrect. If the second chooses to bring the first current, that is their right and the first CANNOT refuse to allow their note to be brought current.
Since the second has indicated their intent to bring the first current, it’s questionable whether they would entertain a short sale offer. But it can’t hurt to try. What you should do is call up the second, and once you reach someone in the loss mitigation department with decision-making authority, tell them – after faxing the borrower’s authorization to release information – you are trying to “help out” the borrowers. I would not suggest that you stress your position as an investor, nor start faxing stuff on fancy letterheads. Just be a helpful, low-key “friend” of the borrowers trying to help them out of a difficult spot. It wouldn’t hurt to mention that the borrower has considered bankruptcy as an option. After all, it’s always an option, whether they remembered to bring it up or not!
Simply ask them if they would consider either selling their note or entertaining a short sale offer. Some will do one, some will do the other, some both and some neither.
Since the sale is looming (I presume that’s what you mean when you say, “foreclosure in one week”) it would probably be quicker if you simply took an assignment of the second’s note rather than going through the whole short sale process.
Unless the sale can be postponed, a week would probably not give you enough time to put together and submit the short sale package.
If the second will sell you their position, then you can go ahead and pay off the first if you have the cash and that’s what you want to do, or you can simply pay the arrears amount, bringing it current and continue to make payments on it while you decide on your exit.