Short sale on second mortgage?

The problem is lenders will treat any type of bailout as a foreclosure: such as a deed in lieu, short sale, short payoff, forecloure, If you take a short payoff on your second mortgage and they report it as paid for less than account balance, then an UW would see the red flag. Are you current on both loans? Can you qualify to purchase the new home with your current payments?

Clarification, lenders treat those options as a "foreclosure" meaning that they will treat it as a short sale, a foreclosure, and a deed in lieu as derogatory to your credit. To avoid any delays in obtaining financing, you would need to have your second to have the accound paid as agreed in FULL, which would be almost impossible. Other than that, try to get approved for both homes