Why should existing lien holders accept the short payoff that is required under the terms of the law?
HUD understands that it will be a challenge to encourage lien holders to accept short payoffs in order to participate in this program, especially when there are other loss mitigation tools available that may provide a more suitable solution. However, in instances where those tools prove ineffective, HUD believes that the holders of these mortgages should accept the short payoffs in lieu of the tremendous losses associated with foreclosure. Similar challenges exist with subordinate lien holders, but by offering them the opportunity to have an interest in FHA’s share of the future appreciation in the property, HUD anticipates more of these lien holders will participate in the program.
