Might be tough to get a short sale approved in this situation due to the fact that the guy has $90K of available funds that he could bring to the table. And I can’t see CW approving a short sale unless they are going to receive some payout. If CW is looking at a complete loss due to foreclosure of the 1st mtg., they may agree to a short sale for a token payout as something is better than nothing. I suppose a deal could be put together but based on the facts of this case there are alot of stumbling blocks.
This scenario illustrates how badly piggyback lenders/investors can get pounded by defaults. I am very interested to see how things develop over the next several years in this area. If values fall to the point that a piggyback lender will suffer a complete loss, what will they do if the borrower simply stops making payments on that loan (but keeps the 1st current)? Why spend money on the foreclosure process when you’re not going to see a red cent?
Piggyback lenders may be ripe for cents-on-the-dollar buyouts in these cases. Picture an 80/20 package – the borrower stays in the home by keeping the 1st current and wipes out the 2nd for pennies on the dollar. The borrower may have to play chicken and go into default on both mtgs to get to this result, then get back current on the 1st.
