By NICK TIMIRAOS Published: November 27, 2010 By: THE WALL STREET JOURNAL
Second mortgages, however, have become one of the biggest roadblocks. More than a third of about 1.33 million properties in some stage of the foreclosure process have at least one junior lien, according to publicly available data tracked by CoreLogic.
Many seconds and home-equity lines are worth little in a foreclosure because home prices have fallen so sharply. That gives the second-lien holder "nothing-left-to-lose leverage," said Mr. Goodman. Banks say they are approving deals where they can, but borrowers must agree to some form of debt repayment. About three-quarters of the $1 trillion in seconds outstanding as of June 30 were held by commercial banks, and of those, more than $430 billion belong to the nation's four largest banks—Bank of America Corp., BAC +0.16% Wells Fargo & Co., WFC +2.49% J.P. Morgan Chase JPM +1.43% & Co, and Citigroup Inc. C +2.97% Forcing write-downs on large numbers of those loans could significantly erode their capital.
Real-estate agents say some banks are getting better at cutting deals. Wells Fargo & Co. now dispatches employees in some markets to appraise homes even before a short-sale offer has been received to help speed potential sales. Bank of America doubled its staff dedicated to handling short sales to around 2,700 over the past year and began using an online platform to allow for paperless applications and approvals. The bank says it has approved 70,000 short sales through September, double the year-earlier total.
In Mr. Trujillo's case, SLS requested far more than the lien was worth on the secondary market, said Mark Johnson, who oversees short sales for Freddie Mac. "That's always been our challenge—participation from second-lien holders," he said. "It's ultimately their decision about whether they want to help us save borrowers in foreclosure." Freddie says it hopes to negotiate a deal for Mr. Trujillo. SLS declined to comment.
Jeff Gray waited months to complete the purchase of a home in Litchfield Park, Ariz., as part of a short sale, only to see it fall apart days before closing. Chase, which serviced the first mortgage for Freddie Mac, approved the sale but wouldn't forgive the second mortgage, which it owned. Chase says it has completed 83,000 short sales since 2009.
Mr. Gray eventually bought another home in the same neighborhood; meanwhile, the short sale was listed for sale by Freddie Mac earlier this month for $30,000 less than what Mr. Gray had offered.
"It's sad," he said. "The grapefruit tree in front is dead, the grass has turned brown, and the shutters are starting to fall."