In working in the Wilmington NC Short Sale arena for the last 2 ½ plus years, I have seen lenders do just about everything when it comes to negotiating short sales with home owners. There really is no “standard” in short sales. The way one short sale file at one particular lender is handled can be totally different on the next.
One of the biggest reasons for this is that every lender has different investors that actually own the loans. There could be more than twenty five different investors that have interests in loans at one lending institution. So for example just because Bank of America may have done something for a home owner in one circumstance does not mean they would do the same thing for another home owner in the exact same circumstance.
More often than not this is because one investor may not have the same needs or requirements as another investor.
There are basically three scenarios for a seller when completing a short sale. They are a:
- Cash contribution to the lender at closing.
- Signing a promissory note to pay back some portion of the short sale debt.
- A combination of these two things.
- A complete debt removal.
The biggest consideration for most home owners completing a short sale is debt removal. My goal of course in any short sale is to get the most favorable terms and conditions for the seller which is a complete debt removal. Many lenders today want sellers to have some kind of “skin in the game” if they are going to grant a short sale.
In my experience the terms that most home owners get from short sale lenders is very favorable. Home owners are typically asked to bring a cash contribution or sign a note that basically amounts to pennies on the dollar compared to what they owe.
A typical scenario could be a home owner being substantially under water…..for argument sake let’s say $100,000. It would not be unusual for a lender to ask the seller to bring $5000 to the closing and letting the short sale take place. Another possibility if the seller does not have $5000 is to work out a promissory note. Maybe the lender asks for a$15,000 note to be paid back over the next five years at an attractive interest rate. As mentioned previously it could be a combination of these two options. These are just quick examples to give you an understanding of what happens in the short sale world on a daily basis.
There can be circumstances although not real often, where the lender will only accept a cash contribution in order to close. The short sale lender may have this requirement for one of the following reasons:
- The seller has money in liquid accounts.
- The seller has not been late with any mortgage payments.
- The cash contribution is a requirement of waiving the deficiency (debt removal).
- The seller has a good credit score and are current with other debt.
- The residence is an investment property.
One of the most difficult parts of going through a short sale as a seller is the long wait involved from the time you get an offer from a buyer until the time you actually begin negotiations with the lender. Sometimes there can be months in between the two. As a seller it is easy to feel in the dark and helpless. There can be times where you will be in this waiting game wondering what the lender is going to require of you and then their request finally comes. They ask you for a cash contribution that you just don’t have.
I have an outstanding short sale attorney that works on behalf of the seller with all of my short sale transactions. In a circumstance where the lender asks for a cash contribution that the seller just can’t come up with the first course of action will be to try to work out an amicable compromise with the lender/investor. This would typically be one of the following:
- Negotiate to get the cash contribution lowered to something the seller was able to bring to closing.
- See if the seller can get the funds from a family member or borrow from them.
- Try to get the lender to accept a promissory note instead.
- Ask the buyer to pay the cash contribution if lender allowed this to occur.
In the vast majority of the short sales I have been involved in we have been able to work it out so a compromise was reached and everyone got what they wanted. Should sale negotiations can be difficult at times but if you know what your doing common ground can often be reached.
What would you need to do in the rare instance where a large cash contribution was required that the owner just did not have and the lender would not budge? If all else fails what you would need to do in the scenario above is to put the home back on the market and build in a cash contribution to the lender right into the transaction.
So for example you would add a cash contribution for the lender on behalf of the seller on line 104 of the buyer’s side of the HUD settlement statement. You would also place the same contribution on line 404 of the seller’s side of the HUD as a “Cash Contribution To The Lender”. The payoff amount would then go to the lender.
This is how short sale negotiations work with lenders. If you know what you are doing you can usually find common ground. Of course there are numerous things to look for in a short sale contract which I have covered in a number of articles I have written.
If you are need to short sale your home or condominium in Wilmington NC, Leland NC, Hampstead NC, Wrightsville Beach NC, and Carolina Beach NC. I am successfully completing short sales throughout these areas. So far, knock on wood, I have a 98% success rate for short sale approval! Short sales are specialized transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking an agent that does not understand how to get to the closing table on a short sale. Nationally less than 30% of all short sales close!
WILMINGTON NC SHORT SALE EXPERT