LawsonGroupMediation

Recently we have seen a rash of demands from second lien holders for $6,000 to $6,500 to release the lien.  The amounts were so consistent I decided to look further into this.  I contacted a number of insider friends who wok for various lenders and secondary market investors to determine the motivation behind these consistent demands.  What I discovered was nothing short of outrageous!

My contacts reported to me that a new strategy has emerged among second lien holders.  These banks and investors see the real estate boker commissions as a resource for themselves.  By demanding more money than the first lien holders will approve from the proceeds, the 2nd lien holders know that to make the deal happen, the agents will likely kick in some of their commissions.

This figure of $6,000 or $6,500 is no.  In the early 90′s when I represented creditors, a bank executive told me that when they demand $5,000, most people could raise that amount if they wanted to buy a home.  However, $6,000 is the amount that most people could not raise.  Thus, almost 20 years ago, that figure was the magic number to demand if the bank wanted the short sale to fail in order to hurt the borrower, according to this bank executive, and, he added, this is a number that has spread around bank executive circles around the nation.

Now, however, these banks see that number, not only as the magic number to sabotage the short sale in order to punish the borrower.  They discovered that in order to make the short sale happen, many of the agents were kicking in a portion of their commissions.  Thus, $6,000 is no longer the magic number to sabotage the case, but $6,000 is a new source of revenue for themselves, coming predominantly from the agents.

So the insiders report that those who only want to sabotage the case may demand much more money now, but these banks and secondary market investors who prefer a short sale over a foreclosure (these second lien holders would get nothing from a foreclosure…except bailout funding) have found a new source of revenue over and above the $2,000-$3,000 being permitted out of the proceeds for them by the first lien holders.

Thus, we are seeing a rash of cases wherein the second lien holders are demanding $6,000 or $6,500 to settle the case, knowing that neither the sellers nor the buyers will be able to come up with those funds, but also relying on the agents to give up some of their commissions to make it happen.  So, many second lien holders are now seeking the $2,000 – $3,000 approved to be paid to them from the first lien holder, plus additional funds from buyers and agents up to $6,000 or $6,500, and the approval not in full satisfaction of the debt so they can pursue the deficiency post-short sale.   According to contacts, this is the current trend.

Those of you who believe that the financial institutions are nothing short of evil now have new ammunition for that belief.  These institutions are intentionally relying on the agents’ good will toward their clients or who are trying to salvage at least a little of their commissions.  They are most certainly biting the hand that feeds them.  Without the agents, there would be no loss mitigation!

How widespread this becomes, we will watch and see.  It may be a wise course of action for agents to consider not taking short sales with a second lien on the property.  However, let the agent beware of this potential new threat to short sales.

Best Wishes,

Ken Lawson JD

TheLawsonGroup Mediation Services