Two Short Sale Loans

Question: What Happens in a Short Sale When You Have Two Loans?

A reader asks: "Our home is worth less than we owe against it. We have a first mortgage of $85,000 and a second mortgage of $55,000. Our agent says we won't get more than $85,000 if we try to sell it. What happens to the second loan in this instance?"

Answer: Doing a short sale is hard enough, quite frankly, but it's even harder when you have two loans -- it's twice the headache. I feel your pain. Because not only do you need the cooperation of the first lender, the second mortgage holder needs to release that loan as well.

In your case, you owe $140,000 on a home that is worth $85,000. After paying off the first lender, you will still be short $55,000. Not to mention closing costs.

First, let's take a look at what happens in foreclosure:

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