Can You Short Sale a Home with a HELOC or Second Mortgage?
If you’re dealing with a short sale and there’s more than one loan on the property—like a HELOC or second mortgage—you’re probably wondering: Can this even work?
Good news: yes, you can short sale a property with secondary liens on title. But there’s a catch (actually, a few). These deals are absolutely doable—but only if you understand the priorities, payoffs, and pitfalls.
Let’s break it down 👇
⸻
💡 First: Understand Which Loan Is “Short”
When a seller owes more than the home is worth, we call it underwater. But sometimes only one of the loans is actually underwater.
So here’s the first step:
• If there’s enough equity to pay the first mortgage off in full (after commissions and closing costs):
Then it’s not a short sale for the 1st. You’ll only need approval from the secondary lien holders (like a HELOC or 2nd mortgage).
• If there’s not enough to even pay off the 1st mortgage in full:
Then it’s a true short sale across the board—and all lien holders need to agree to reduced payoffs.
In either case, these deals require tight coordination. And if you’ve ever tried negotiating with a junior lienholder… you already know it can be slow, stubborn, and all kinds of messy.
⸻
🏦 How 2nd Mortgages Are Handled in a Short Sale
When the 1st mortgage is short, the 2nd typically becomes the lowest priority. That means they often get a nominal payoff—just enough to agree to release their lien.
📌 Typical payoffs for 2nd liens in a short sale:
• $3,000–$6,000 (most common range)
• Sometimes up to 10% of the loan balance
• Rarely the full amount (unless required, like with FHA partial claims)
But here’s the trick: if the 2nd mortgage refuses that amount, someone has to cover the gap—either the buyer, the seller, or an outside party (sometimes even a realtor or investor).
⸻
🧩 The Right Sequence: First Then Second
You don’t start by calling all the lienholders at once. There’s a method to the madness.
1. Begin with the 1st mortgage:
Get their short sale approval or estimated net sheet. This will outline how much they’re willing to pay toward any junior liens.
2. Then go to the 2nd lienholder:
With the 1st’s approval in hand, you show them the deal: Here’s what the 1st is allowing for your payoff. Are you in or out?
This sequence saves everyone time—and avoids promising payoffs the first won’t approve.
👉 Want help coordinating this? See how we streamline short sales and take the pressure off your plate.
⸻
🛑 Special Case: FHA Loans with HUD Partial Claims
If the loan is an FHA mortgage, there’s an entirely different rulebook. The second lien is often a HUD partial claim—essentially a silent 2nd held by the government.
In these cases:
• HUD requires the partial claim to be paid in full
• The 1st mortgage takes the full loss
• There’s no negotiation with the partial claim—it’s non-negotiable
That’s a key detail most agents and investors miss. If you’re unsure whether it’s FHA, check the loan type early or ask a short sale expert (that’s us 😉).
⸻
🧠 Final Thoughts: Multi-Lien Short Sales Take Precision
Short selling a property with a 2nd mortgage, HELOC, or judgment lien isn’t impossible—but it is a delicate process. Each lienholder has to agree. Each one has different guidelines. And the wrong step can kill your deal.
That’s where the Crisp Short Sales experts come in. We know how to structure these files, submit clean packages, and push approvals through—without drama.
Whether you’re an agent, homeowner, or investor, don’t let a second mortgage stall your deal. If you need backup, check out who we serve or start your short sale here. We’ll help you figure it out.
⸻
Thanks for reading,
Yoni Kutler
404-300-9526
yoni.kutler@ygkutler.com