Expert: Brian Beardsley - 9/22/2009

Question
QUESTION: This is complicated to explain - here it goes - I bought the house next door in an estate sale and the 2nd mortgage on the home is held by the estate's son. He lives on this money. We rented the house for several years.  Then I lost my job this year and finances have gotten far more stressful.  House is on the market - it's staged, renters are out - market is terrible and we will have to sell it for a loss and still have to pay the son but we can always regroup afterwards.  Enter at least 4 very willing and would be perfect neighbors - all with different scenarios but the common theme is with the mortgage market being far more strict they can't qualify for a big enough mortgage or have enough cash for the down payment.  I'm behind on the 1st mortgage payments with no work out programs because I'm still unemployed.  I'm current on the 2nd.  I don't want to go thru the winter with 2 houses to upkeep.  I don't want to rent it again.  The 2nd mortgage holder is happy to be the 2nd mortgage holder again but would prefer if 'we' pay him and 'owe' him since we do have a long neighborly history.  Is there a way to structure a Home Equity Share/Joint venture deal - like buying 1/2 a house?  Where the buyer secures the 1st mortgage for the maximum they can afford and I use the '2nd' mortgage that we currently have to help finance the rest?  The son actually does not want a lump sum as he's afraid he'll spend it all too quickly.  We don't have a real estate broker as I'm FSBO trying to minimize the loss. We're in NY.  I'd appreciate any creative advice you could give. Thanks.

ANSWER: Thanks for your question, sorry for the delay in my response.


Would the first mortgage holder consider a "short sale"?  If the son is willing to arrange something else as a repayment plan, you may be able to get the first mortgage holder to accept less than what is owed - They don't want to own the house, and if they foreclose the son will lose out on what is owed on the second mortgage.

For example, if your payoff is $100,000, the son's second is $50,000 - Sell the house for $125,000 - the proceeds would be split 66/34, and you'd be out of the house (whatever arrangment you make with the son is between the 2 of you...)  It would get you out of the house....

Thoughts?

---------- FOLLOW-UP ----------

QUESTION: They won't or can't do a short sale because the house is assessed at $460,000 and I have it on the market at $379000 and most feel it should sell in this down market at about $360000. Even at $300K which would be distaster for the cul de sac area the 1st mortgage is $222,000. Whatever 'loss' winds up on the 2nd.  that's why I'm wondering if there's a way to structure a new buyer and still use the current 2nd mortgage.

Answer
Sorry - I didn't see the follow up post...

You'd be unable to secure that second on a property you didn't own (you could consider selling the house and signing a private unsecured note for the second if the holder was willing to discharge it at time of closing - He'd still get paid and you could sell the home)