When you start negotiating a short sale, it can be tempting to do whatever it takes to get the deal to go through. The problem is, as a seller in duress who is underwater on your mortgage, you don’t have a lot of leverage. In fact, it’s your primary mortgage company that holds most of the power in these negotiations. They get to decide who gets a slice of the pie.
Junior lien holders are second in line when it comes to getting a chunk of the sale. This includes lenders holding a second mortgage or HELOC loan on your home. They may be small players; however, they do have veto power over the short sale. If they don’t agree to the terms, the sale cannot be completed. The primary lender will cut them in on the action, but there is a cap on the amount they will be paid.
Some unscrupulous secondary lien holders are bound to be unhappy with the suggested settlement amount. They may try to pressure you to give them a one-time payment under the table (outside of escrow and not disclosed on the settlement statement). This is fraud – and you are just as legally liable as they are if you agree to do this. Always have your reputable short sales specialist handle communication with lenders to make sure everything is above board with your deal.