Collector Says DOJ Told Chase They Don’t Have to Release Second Lien in Short Sale Unless They Get Some Cash

“Dear Steve,

I am a real estate agent negotiating second lien with Chase

During the course of my negotiations on the second lien with Chase through their agent I was told by that agent that he would not submit the request for second lien release to his investor unless he gets (Chase) 8% of the total ORIGINAL second loan. Usually and as a normal practice rule and mutual understanding between lenders, a max of 6% of the current purchase contract or $6,000 whichever is less is allowed to the second lien from the proceeds. I certainly pointed that fact out to the negotiator. However, his response was that it is a new RULING that was recently passed by the Department of Justice that the first lien holder must allow 8% of the ORIGINAL second mortgage and that the first lien holder would not object to that amount according to the ruling. My question is: is it true? I called the Department of Justice and I was told that they never heard of that.


Dear Mike,

I had to check with a real estate broker friend and here is what he said.

“Unfortunately this sounds all too familiar. It happens all the time when 2nd mtg’s are involved. I have not heard of anything to do with the DOJ requiring 1st mtg’s to offer 8% or 2nd mtg’s to take 8% (although I wish there was, my life would be way easier).

He is correct 6% is the norm, and most major banks servicing 2nds understand this and will (reluctantly) agree to accept it, knowing that they will probably never get more than the 6% being offered. I’m going to take a wild guess here though, and say that this 2nd is sitting with Chase Recovery, the same guys that collect on the pre charge-off Chase cc debt. They are known for bullying agents around on short sales, and many times don’t pay much attention to what is customary with a normal short sale.

In the end, this doesn’t sound like they are too far away, one side or both will almost always budge, but they can make it a huge pain in the butt, wasting a lot of time.

If I find that we’ve reached an impasse I will ask the buyer to come up a little to cover the difference to the 2nd, this can work if the buyer is already getting an incredible deal.

As a last resort, I will ask the Seller’s to accept a prom note for the difference, especially if they have plans to file BK after the short sale is complete.”

Please post your responses and follow-up messages to me on this in the comments section below.


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2 thoughts on “Collector Says DOJ Told Chase They Don’t Have to Release Second Lien in Short Sale Unless They Get Some Cash”

  1. Your latest suggestion to increase the price to satisfy the
    second lien sounds good, except for I tried it once and it backfired on all
    parties involved. when the buyer agreed to increase the purchase price the
    first lien holder  was adamant and firm
    on the percentage at 6% in other word when we increased the price by the amount
    required by the second, the negotiator for first lien holder told me that they
    deserve that money; for that matter, the second lien holder’s portion increased only by 6% of
    the increased price. First lien holder went even farther and told me that there
    will be no side deal with the second lien; for instance, a check for the
    difference outside the HUD and I was told that if the know about it they will kill my deal.    

    • Mike,

      You’re right, officially increasing the offer by sending in a new purchase contract and HUD could place the buyer at risk of paying more, meanwhile the 1st gobbles up the increase and you’re left with the same 2nd mtg problem. I would suggest first bringing this scenario up with the negotiator on the 1st and spitball ideas with him/her on how to get the additional 2% covered. They may have a reasonable solution.

      If they have nothing for you other than for the 2nd to take 6%.. or leave it, then you must go back to Chase and work it on that end. Send them everything you have again… local comps, appraisal, condition statement, listing history, offer history, borrower financials… everything. Call them up and negotiate, lay it all on the line. Let them know that if they don’t acept this 6%, the entire deal is going to blow up and nobody gets a dollar. If it doesn;t sink in with the person you’re speaking with.. ask for their manager… and present you’re case to them.Do whatever you have to, to be heard.  

      Curious…Who is the 1st lender?

      – Andy


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