New foreclosure law regarding more than one mortgages?

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I have a friend who is unfortunately being foreclosed on with three mortgages on a single residency. He has a senior mortgage and two junior mortgages. According to current laws, I was informed that it is possible to end the foreclosure by settling only the senior mortgage (Either by refinancing or short-selling) and the two junior mortgages would become irrelevant (Completely eliminated where the lenders would have to write-off the loan as a loss) so as long as we settle the first mortgage. Is this true or in any ways possible? The house is located in Queens, NY.

I have a client that owns a 2 family investment property in NY. His current balance is 511k. Client is in good standing with clean mortgage history. Bank calls clients and offers him a reduction of mortgage if he refinances the home. I called the bank and they state that they need to get the loan off their books and are willing to take the 385K if refinanced with another bank. Has anyone ever heard of that?
And how do you handle a restructured loan?

  1. Reply
    February 1, 2011 at 6:52 am

    I don’t believe there is such a law that allows you just to deal with the first mortgage holder and kiss the juniors goodbye. The first lender would also tell you that this is not possible, unless you have the concurrence of the juniors and why would they give such assent, if there is nothing in there for them?

    If the first FORECLOSES, then the juniors have the right to either reinstate the loan and begin their own foreclosure. Obviously they will only do that if they believe there is adequate equity, so that they can get some or all their money back. If the juniors do not reinstate, then the house is sold at the foreclosure auction of the first and the juniors are out for good.

  2. Reply
    February 1, 2011 at 7:08 am

    Well, I would suggest first that he talks to his accountant and make sure he understands the ramifications of any kind of transaction like this. On the face of it, it seems straight forward. If the bank needs the debt off its books and it wants to get 385K on a note worth 511K then that sounds like a good move. It could simply be that the bank is needing the cash NOW and doesn’t want to wait the term of the mortgage to recoup it. Maybe they got a 385K bill they need to pay next month, or they need to raise capital for their reserves, or they are getting out of the loan business and are willing to take a definate loss now than running the risk of the property running down below 385K and being stuck with it.

    Then he should have the house appraised and talk to a couple of loan officers and people who are in that kind of business. And I mean a couple. Because you want to insure against anything fishy going on here. I think you are wise and doing good by your client to question this, but in the current environment with the banks getting squeezed, I can see them willing to do that.

    Get it all in writing. The question I am wondering is why can’t the bank simply sell the note to another bank instead of involving the owner? Does the bank not have the note? What bank are we talking about here?

  3. Reply
    mortgage underwriter
    February 1, 2011 at 7:33 am

    Refinancing with them, would not get the loans off their books. They may want to get the old loans off the books, with a new refinance at a lower loan amount. They may have reports that tell someone how many loans are upside down.

    Haven’t heard about it, but if it’s the bank that’s calling and not some scum bag trying to scam him. Please tell me you called the bank from his regular statement and not some number on a message or letters your client has received.

    Good luck and take advantage of the offer.

  4. Reply
    February 1, 2011 at 8:27 am

    This is just a bogus deal where everyone preys on the good and gets a piece of the action. The Mortgage company wants 200K for selling the mortgage to another bank and is willing to settle for 385K so if you add this up and the new bank charges your client a finance fee. He will be paying about the same but will have a new mortgage for a longer term.
    advise him to stand pat.

  5. Reply
    February 1, 2011 at 8:34 am

    It sounds like the current lender is willing to take what is called a “short payoff” which is similar to a short sale. A couple of things to watch out for on this.
    1) Will the current lender hold the difference against the client after the closing?
    2) Did you contact the lender directly from a mortgage statement phone number?
    Like one of the other posters mentioned the lender may very well need to get this loan off their “books” for reserve or solvency requirements but think about how hard it is to get a short sale approved.
    The best approach may be to have a mortgage banker/lender order a pay off statement to see what happens.

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