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Irwin Law
Irwin Law, Lawyer
Category: Real Estate Law
Satisfied Customers: 7346
Experience:  Lawyer- Broker 30+years - foreclosure, short sale, liens, title attorney.
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I am a home buyer on a shortsale. The first lienholder

Customer Question

I am a home buyer on a shortsale. The first lienholder accepted $2.0million on the purchase price of the home.
There is a second note holder who expects me to pay $235K additionally at closing to cover their debt. This is handled outside of the first transaction.
Is this normal?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Irwin Law replied 1 year ago.
I am not sure what you mean by: "Is this normal". In a short sale where there are two mortgage liens against the property which must be cleared, the normal procedure is for the second lienholder to agree to release their lien for a specific payment which comes from the purchase price at closing. The California escrow system is quite a bit different from what I am used to, but the end result is the same. There must be an agreement in advance for the release of both mortgage liens at the closing. Usually the lien holders will agree to the division of the total purchase price, i.e. $2 million in your case. Then the first lienholder would agree to the payment of so much money from the selling price to release the second lien, because an unreleased second will kill the sale. In other words, the owner or buyer does not negotiate and pay off a second mortgage lien separate from the first. I know this is confusing but short sale tends to be that way.
Customer: replied 1 year ago.
Early in the process under the advise of my realtor, I signed an attached document agreeing to pay the second lien holder $235K in addition to the purchase price of $2.0M (approval also attached). I get the feeling like the $235K that I agreed to give them previously is steep.The overall purchase price would be $2.235M which is actually pretty good for the area (Typical house sells for over $3.0M in Los Altos Hills).I'm considering asking Wells Fargo (the pri***** *****en holder) to include Cal West (the secondary lien holder) to be part of the purchase contract in hopes that I don't have to pay the full $235K. I am afraid that there is the risk the Wells Fargo will up their purchase price substantially if I do this though.Can you please advise?
Expert:  Irwin Law replied 1 year ago.
I am trying to get my brain around this transaction and the documents that you sent. What I now understand to be the case is that: 1) you are purchasing the home from the owner Karen Vedad, not from Wells Fargo, therefore Wells Fargo cannot increase the $2mil. purchase price that the homeowner has accepted; 2) Wells Fargo's first mortgage is not upside down, and will be paid in full; 3) There will be approximately $150,000 remaining for application to the second mortgage with CalWest, which is in foreclosure. 4) it is CalWest that is actually accepting the "short payoff" of $235,000. I don't understand why the CalWest pay off is not shown on the closing statement. The escrow agent should receive a payoff statement from CalWest, and require you to bring the difference that is needed to close in cash to the closing. That is unless there are to be Different arrangements made with Cal West after the closing. Needless to say, this is not the simplest transaction that I've ever seen, but I do understand the concepts that are involved. Perhaps you would feel better with a telephone conference which I can offer through our premium service. The cost would be an additional $59. If you are interested in that, please reply and I will send you the offer. The contact has to be done through the Just Answer website, not outside of it.
Expert:  Irwin Law replied 1 year ago.
I want to revise what I submited previously.
Expert:  Irwin Law replied 1 year ago.
Dan: This discussion kind of went off the rails this afternoon. Did you receive my offer for direct phone consultation? If you have it, all you have to do is click on accept the offer and I will be giving your direct phone contact number within a few minutes.Please let me know. Irwin Law
Expert:  Irwin Law replied 1 year ago.
Are you still in need of assistance with this issue. What I wish to change from my initial Answer is that I now DO believe that WF can increase their payoff price if they know that $235k is going to CalWest. Also, if you are obtaining new mortgage financing, your lender may (probably) not want to do it the way the closing statement shows. A lot depends on where all the purchase money is coming from. Irwin Law.