Short Sale: What happens to HELOC in secondary position?

[Christian Tibok]

During a short sale when the primary lender is owed 361k and secondary HELOC is owed 78k, what happens when the package was submitted to the primary only? How can the secondary position get what is owed to them?

[Ron S.]

Originally posted by @Phil Z.:

Put $5000 as a 2nd lien pay off.  Youll need to do 2 short sale packages and the 1st will ultimately decide the amount to the 2nd.

 I disagree. The first may say that's all they are paying but the second can say, they are not accepting that.  The first cannot do anything without the cooperation of the junior lien holder. The second can sit on their hands and do nothing forcing the senior lienholder to cancel a short sale. More often than not, when the junior digs in, the agent will often times use the "They'll file bankruptcy and you'll get nothing" threat or the, "They will let it go to foreclosure and you'll get nothing" threat. If they file bankruptcy, depending on the chapter, they could be paid in full. if there is one dime in equity over the balance of the senior, they can't strip the lien and we aren't in the economy to where there wouldn't be equity above senior lien balance in most cases. If they let it go to foreclosure, As a sold out junior, lender has full rights to pursue the borrower for the entire balance so, it's best that each lienholder be reasonable but in no way does one have the upper hand over the other. No way does the first ultimately decide the amount to the 2nd.