A realtor involved in a short sale with first and second mortgages. The first mortgage is $xxx,xxx and the offer is $xxx,xxx PLUS $86,000. The first mortgage holder demands we prepare the HUD-1 indicating $3,000 to the 2nd mortgage holder and entering $xxx,xxx PLUS $68,000 to the first mortgage holder. The first mortgage holder further instructed that I must negotiate with 2nd mortgage, liens, condo association (all of which are owed arounf $20,000). Question is: What the heck will the first mortgage holder do with the extra $68,000??

Wait a second... is the purchase price going to cover the full amount owed on the first mortgage? If so then it's not a short sale and the first lender has no right to make any demands.

So I will need to pay them (1st mtg) the full amount they are owed and deal with the 2nd mortgage holder, who will be short?

As long as the purchase price will cover the first mortgage, yes. It will be a short sale only as to the second lender, not the first.

Thanks, I appreciate the help

My pleasure. Good luck!