Working with Chase’s Recovery Dept!
In this edition we discuss a short sale we’ve got in progress in which there is a 2nd mortgage with Chase. The loan is a home equity line of credit for a little under $90k. This loan has since gone to their Recovery Department, which brings up a whole new set of challenges and guidelines which will need to be met in order to complete the short sale and get approval.
When a loan is still with Chase’s general short sale department, they’re typically willing to accept smaller amounts in order to release the lien, often around $3-4k. But once a loan goes to recovery, all bets are off and that amount no longer suffices. Typically, loans go to Chase’s recovery department after 6 months of non-payment, but even that can be case by case. If there is dialogue between Chase and the seller regarding making payments, they may be willing to push that back. In our case, the seller hasn’t paid in 2 years.
So in speaking to Chase today, we were told that in order to even consider a release of the lien, we’d need to get Chase a minimum of $17k at closing, as a 2nd mortgage! But preferably, that minimum number was more like $21k! Crazy right? But it does happen all the time. And here are the important takeaways with these types of situations.
Recovery Departments often double or even triple the minimum requirement. You should just expect this, and not be surprised if this happens. This is due largely to the fact that lenders expect that sellers are stocking away the money they’re not giving them for the monthly payment. You’ll never convince a lender that any money not being given to them is needed for other important things, such as food.
Depending on when the seller last paid will determine whether or not a prom note is a possibility. We often like to propose an arrangement in which we get a 2nd a reasonable amount at closing, and then have the seller agree to sign a prom note for the rest. So in our above example, we’d get the lender something like $6k at closing, and have the seller agree to a prom note for $11-15k. In some cases this may appease them, so it’s worth asking. But understand that the lender’s response will depend on how long it’s been since the seller last paid. If it’s been a year or more, they won’t agree to a prom note, because – what reassurance do they have that the seller won’t just stop paying that too?
Does this lender have the ability to pursue legal recourse? This refers to whether or not the lender can sue the seller for the balance on the loan. And this is often the critical factor and what provides the leverage for many of these 2nd mortgages. If they DO have the right to sue, then understand that the way they’ll see it is they’d rather spend the next 20 years going after the seller if it means they’ll get half the loan paid back; then accept a lesser amount now. That’s what they’ll choose every time.
So how to beat this? Well…the reality is, the only way is to simply get the money to Chase that is within their guidelines. Easier said than done of course. But this is why we tell sellers all the time to keep 2nd mortgages current if they can, and if not to prepare to bring money to closing to help satisfy 2nd’s. Because we know that these situations happen all the time. For us, not only did the seller not accomplish those first two tasks, but they also kept the existence of this 2 nd from us, and we had to find out the hard way. So another takeaway here, and we’ve written about this before – is to do a title search before beginning a short sale!