Series – Modify or Refinance? Multiple lien holders

Whether you are modifying, refinancing or trying to short-sell your home, multiple lien holders are a huge potential stumbling block.  For purposes of definition, in this posting we will be dealing only with lien holders with notes secured by the property – your 1st, 2nd (etc.) mortgage holders, HELOC lenders and such.  These can include banks, private investors, trusts, etc.  We will not be dealing with tax liens, mechanics liens and such.

Modification – with some exceptions, your lien holders can be dealt with separately.  If the 1st does not want to modify but the 2nd will, you have modified part of your loan.

Refinance becomes trickier.  You need to ascertain whether the 2nd will subordinate to the 1st.  That will allow you to refinance the first, while leaving the 2nd in place.  Ideally you could refinance at the same institution where the 2nd is held.

Short sale pitfalls come when a 2nd is unwilling to take the cut in amount owed after the first has sucked off as much as they can.  This is probably the biggest stumbling block in having short sales complete.  As a seller, calling your bank before you call an agent will help you know whether the lien holders will make amicable settlement or whether the 2nd will hold out for more long enough that the property goes into foreclosure.  Unfortunately this happens frequently.  If you are a buyer seeking a short sale to take advantage of the market malaise, have your agent check the property history to see if they can ascertain how many lien holders there are, before you proceed.

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