Tuesday, March 6, 2012

Short payoff offer on the property vs. short sale

Question: I have three mortgages on my current home: 1) first two are with the same bank and I am about 1 year and 6 months behind on them respectively, 2) the third is with a credit union and is currently up-to-date. I stopped making mortgage payments because I ran into financial difficulties. The fair market value of the property is currently as much as the principal on my 1st mortgage alone, plus I owe back payments, interest, penalties and taxes in addition to principal. The bank is not willing to discuss a loan modification but is willing to entertain a short sale, the problem is I want to keep the property. Is there any precedence for approaching the bank that owns the 1st and 2nd notes and offer to purchase or payoff the notes using the money from my savings? I only want to pay fair market value or some compromise. Do you think the bank that owns the 1st and 2nd mortgages would entertain a cash offer without me having to disclose my finances?

Response: Most banks will agree to do a short sale but refuse to do a short payoff. They do not want the borrower to benefit twice by extinguishing part of the debt and allowing the same borrower to remain in the home, whereas the bank will agree to do a short sale for the fair market value of the home with a 3rd party. Unless you are willing to pay the entire debt owed to the bank, the bank is not likely to entertain your offer. Some banks might agree to 80% of the full amount but you have to send them an offer in writing and you must stay on top of this, as banks often neglect to respond to such offers. Also, it is important to note that banks, upon realization that you have the ability to reinstate the loan, will refuse to entertain any short payoffs or loan modification offers. The bank might not necessarily know of all your finances but they will likely have to verify your funds to be sure you show affordability. This may, however, begin a cycle of questions that may be problematic and take you back to square one.

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.

The information contained in the legal blog of Attorney Svetlana Kaplun is for informational purposes only, and should not be construed as a legal advice on any subject matter. Please read our full disclaimer or contact the Law Office of Svetlana Kaplun, P.C. by telephone at 718-444-1115 for more information.
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