Yes, you can still do a short sale if you have a 2nd HELOC, however it can be more difficult depending on your lender. It is important to understand that HELOCS are a completely different type of loan, and the lender can allow you to do the short sale and release the liability on the property, but they may demand alot of money in order to do so. Why? Because if the property were to go to foreclosure they bank could still come after the homeowner for the entire remainder of the unpaid balance. Recourse HELOC’s are like credit cards with a lien on a property. If the lien is released from the property in a foreclosure, it doesn’t always mean the line of credit is closed. MANY inexperienced short agents do not understand this. A new trend that is happening as well is that the bank can sell the bad HELOC loan on the secondary “debt collection” market for a higher price (10%-20% of note value) than what the lender in first position is willing to pay (1%-3% of loan value). Because of this many HELOC lenders have become extremely more aggressive in requiring a 10%-30% payout from borrowers to allow a borrower full release from these loans and will continue to do so because of the new law that went into effect July 15th, 2011 that removes the banks ability to come after a homeowner after a short sale. Banks such as Chase, Greentree, Etrade, and PNC have been the most aggressive so far requiring at least a 20% payout, and I am sure many more will plan to follow suit.
If the HELOC lender wants a 10%-30% payout to allow a short sale with FULL SATISFACTION, and the first is not willing to come up to that amount and other remedies cannot be found, it is possible that they may force the 1st lien holder to foreclose which would devestate your credit. In order to get this done, the banks are no longer allowed to ask for any money from the homeowner BUT the homeowner can VOLUNTEER to pay money in order to allow the short sale to go through.
After a consultation we will be able to talk to you about your goals and likely scenario outcome. You will also not be obligated to commit to anything until you understand the terms the lender is requiring. If you do not agree to what you lender requires then you can cancel your listing at anytime without any fees paid and not go through with the short sale