SHORT PAYOFF OF MORTGAGE
Many of our clients have money to make a large payment on their mortgage, but cannot afford to pay off the mortgage in full. A short payoff is when a lender agrees to accept less than the full balance of the mortgage as payment in full for the secured debt. When negotiating a short payoff, a lender may accept a one-time cash payment or may accept a new unsecured note. Short payoffs are becoming very common for second mortgages and home equity lines of credit (HELOCs). Short payoff is also often simply called debt settlement, because you are settling a debt with a mortgage lender.
More than One Mortgage? Try Loan Modification Paired with Short Payoff
When a client has multiple mortgages secured by their real estate, then we commonly recommend clients consider doing a combination of loan modification and short payoff. Although it is possible to get a loan modification on both mortgages, clients can often get and excellent outcome if they start with a loan modification on their first mortgage and then attempt a short payoff on the second.
California’s anti deficiency laws enable a good real estate attorney to create strategies which can render the second lien holder powerless to collect on their note. In those situations, we have found many lenders amenable to short payoffs. We have been able to negotiate a release of the lien and the loan for just pennies on the dollar, though results can vary based on the property, amount owed, and value of the home.
If you intend to negotiate a loan modification on your first mortgage, you may want to consider the timing of your short payoff negotiations. A short payoff may improve your debt to income ratios, and can adversely affect your credit. Our office offers consultation on short payoff strategies at all locations.
Short Payoff Paired with Short Sale
Because of recent changes to California law, you may wish to consider doing a short payoff prior to beginning your short sale. Many second mortgage lenders refuse to approve short sales because doing so would prevent that lender from collecting any money owed to them. Many clients will attempt to negotiate a short payoff on their junior mortgage prior to listing a property for short sale because then they only need short sale approval from the first mortgage.
Once you get the second to release the lien and liability for their loan, you can then decide whether do a short sale or keep the property and perhaps even attempt to do a loan modification with principle reduction. Short payoffs can be a great option for the owners of California Real Estate.
More information about short payoffs of second mortgages can also be found in our “Debt Settlement” practice area.