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What happens to the second mortgage in a short sale?


I consider buying a house in a short sale. Do I deal with the first mortgage before the second mortgage? Do I have to deal with the second mortgage at all? I have to tell either lender about the other loan and payoff amount?


Usually, the second lien will join in the foreclosure as plaintiff, or, attend the sale and bid up to its exposure or upset price.

You have to look at the proposed short sale as a whole.
Neither lender will want to accept less, unless it is in their best financial interest to do so. The lender will make an estimate how much they can recover based on estimated value. If your short sale proposal meets or exceeds their anticipated net recovery after foreclosure, then they will probably accept your proposal.

If the first lienholder is to accept less than they are due, then the second will not get much if anything at all.

About your second question if you have to disclose payoffs to all parties - yes, the financial disbursements are made known to all parties via a HUD1 settlement statement. The lien holders typically ask for an estimated HUD1 statement for the short sale application.

Generated 8:00:48 on Mar 28, 2020