Guest-host Gary Laturno, a real estate attorney and broker, tackles your real estate questions today as part of Savvy & Sage: Tips on Buying and Selling in 2009.
Reader Mark e-mailed a question in:
We are short selling 3 properties, all upside-down with first and second liens. On each property, the first and second are with the same bank. We are hoping the second lienholders will accept very minimal payoffs. None of the seconds were used to purchase the properties they are attached to, but the proceeds from 2 of them were used to purchase 2 of the 3 properties (took a HELOC on property one, bought property two, took a HELOC on property two, bought property three, took a HELOC on property three for cash).
I know that in the event of a Trustees Sale the second could seek a defiance judgment. My question is whether the second could or would or seek a defiance judgment after they have accepted the minimal payoff in a short sale? Does it depend on the language used in the short sale agreement?
Also, could the HELOCs used for purchasing properties two and three be considered non-recourse?
You are correct. Look at the language used in the short sale agreement. In addition to releasing their lien, ensure that the short sale agreement expressly releases you of personal liability for the note. You may want to have legal counsel review the short sale documents prepared by the lenders.
Lenders take a narrow view of purchase money/non-recourse loans. Did you borrow the money to close on the property? Is the home owner-occupied? If so, it is a non-recourse, purchase money loan.
(For more on the difference between types of loans and which ones the banks might pursue after foreclosure, read today’s first post.)
If you have more questions for Gary Laturno, please leave a comment below or send an e-mail to email@example.com.