Alternatives to Foreclosure: Short Sale Strategies

The strategy on a short sale is to negotiate a discount with the first mortgage and let the first mortgage negotiate the Junior Liens for you.

In a foreclosure, Junior Liens face a different situation. Typically, auctions require all cash buyers. The terms are usually 10% due immediately and the remainder due in a few days (or the 10% down is defaulted on). With so much cash required, usually only sophisticated investors attend auctions. In distressed "buyer" markets, most of these cash buyers seldom buying Junior Lien mortgages, which would require paying off the 2nd and 1st mortgage. Why buy out a 2nd mortgage and 1st mortgage when you can buy simply buy out the 1st mortgage?

In reality, the junior liens can deny the first mortgages demands for small settlements. They have the option to purchase the property at auction. However, in distressed markets, most second lien holders are unwilling to do this unless the property has substanstial equity.

Lenders are more likely to negotiate if 1) your offer is within 80% of the BPO(Broker's Price Opinion), 2) if the property needs a lot of repairs and/or 3) if the selling market is weak.