Earlier this year, the state legislature passed a bill, SB 458, that states that a lender cannot “require” the seller/debtor to make any contribution towards a second mortgage in order to do a short sale. The reason behind this legislation was to protect the consumer from the lender. Unfortunately, one of the possible ramifications of this legislation is that many of the second mortgage holders may not settle for what the first mortgage holder is providing from the proceeds of the sale and the second mortgage holder may stop the short sale from happening.
What is the short sell homeowner to do if they are faced with this problem? Nothing says that the seller cannot “volunteer” a contribution to satisfy the second mortgate holder so that they can get the deal done. For example, if the first mortgage holder says that the second mortgage holder will only receive $5,000, and the second mortgage holder responding to a short sale offer with a requirement that they receive $X more. They don’t say where this money is to come from because they cannot require the seller to pay it.
In fact, this money may come from anyone, including the seller.
Just keep in mind that what ever is done, it must be fully disclosed to all parties and must be reflected on the HUD statement.
For more great information on legal issues, check out Steve Beede’s blog at sjbeede@bpelaw.com
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