Second Trusts Are Holding Up, Killing Short-Sales

Imagine this… The first trust (bank who the first/primary mortgage is with) approves their short-sale within 45 to 60 days, but the second trust takes 4, 5, even 6+ months to respond. And when they do, the response is, “Sorry, but we didn’t approve the short-sale” or “Sure, but we want $XX thousand cash from the seller due at settlement.”

And picture this… The first trust finally approved their short-sale 4 months ago. But, since the second trust has not given a response on their short-sale after a total of 6 months, the first trust says “enough waiting around” and forecloses. The contract then becomes void and, after 6 months of waiting around, the buyers are back to square one looking for a place to buy and live.

Pretty crappy, huh?

Unfortunately, these are real life examples happening here often and everywhere. And it’s killing short-sale transactions and frustrating home buyers and sellers everywhere.

The chances of the you actually getting to the settlement table and buying the house are much smaller when there is more than one trust or bank involved as compared to only one trust being involved. And the time it takes to get a response can double (or triple in some cases) when there are two trusts involved.

What’s the solution?

There isn’t one at the moment. But, you can protect yourself and manage your expectations by knowing what you could be getting yourself into. Part of doing that is making sure you ask the right questions including, “How many trusts/creditors are involved in the short-sale?” - before you write an offer on the property. You’ll avoid a lot of disappointment and frustration down the road.

On a related note, the Obama administration is attempting to address this issue by agreeing to share the cost of the loss with second trust/lien holders (aka banks/creditors). We’ll see if that pans out and what effect it will have…