The answer is (gasp)  C) The Sellers.

While everyones believe that the Short Sale Banks are the ones that pay the closing costs and commissions, it is actually the SELLER.  Follow me on this one and you'll never look at Short Sales the same way.  They are truly more like regular sales than you've ever dealt with.

The Sellers are the ones that own the property.  And just like in a regular sale, the closing costs and commissions come from the GROSS sales price.  This is money coming in to the Seller.  The bank gets the remaining, or NET proceeds.  They bank may want to increase their net and "disallow" closing costs, but if they state a higher net in the letters than was reflected on the proposed net on the HUD, the Seller may still be contractually obligated to pay those closing costs that were previously agreed to in writing  if they are not removed from the contract with an addendum.

This becomes particularly important if the Seller is not covered under the Mortgage Debt Forgiveness Act and faces a tax liability on the short fall of the mortgage forgiven by the Short Sale Bank.

Andrea:  This is one that I see misunderstood constantly, and why so many buyers think they can ask for the sun, moon and stars.  The banks are only dealing in the net proceeds.  The commissions and closing costs are paid out of the gross that comes in to the Sellers.

Carla:  I can see where you get this since the Buyer's loan is funding the purchase price, but since the closing cost assistance would come off the Seller's side of the HUD, and the Bank is not the Seller, it is the Selelr. 

Satar:  When the Short Sale Bank becomes the Sellers (i.e. if it goes to Foreclosure) THEN the Bank is paying the closing costs.  If the Seller still owns the home and is listed on the HUD, the closing costs and commissions are coming out of the gross sales price coming in to the bank.  The bank gets what's left AFTER that stuff. 

Carol Ann:  I put that in there just to make everyone's stomach flip.

Andrea:  Even though there is no equity, the Seller is still the one paying it.  Obviously, this affects the net to the banks so they will often ask to counter, but at the end of the day, the bank is simply no where on the HUD, just like in a normal sale.  Sellers can even use the closing costs they paid as tax deductions.  It's really no different.  If the banks were paying, they'd be writing checks at settlement.  It's coming from the Sellers.

Elizabeth:  Well that might more sense than the bank now, wouldn't it?

Marilyn:  It's not a hard concept.  The money all comes in to the Seller and is paid out by them.  The HUD-1 works no differently in a Short Sale than in a regular sale.

Pam:  This one is easy to remember if you just look at who the Seller is on the HUD.  It's never the bank in a Short Sale.  So for purposes of the sale, the money comes into the Seller and they pay it out.