How To Deal With A Cash Contribution For A Short Sale

Folks, as you may know, Borrowers (Sellers) are often required to make a cash contribution to the Investor or Mortgage Insurance Company in order for the Short Sale to be approved.

There are several reasons why the Borrower may be asked to do this:

1. They are not late on their payments.

2. They have a good credit score and are current on their bills.

3. It’s an investment property.

4. A contribution is required in order to Waive the Deficiency.

5. They have cash on hand and/or large retirement fund accounts.

This is by no means a comprehensive list but you can see the trend.

Recently, one of my Sellers was required to make a $10,000 cash contribution in order to avoid a possible deficiency judgement in the future. The Sellers had no money but were current on their payments and it was an investment property.

Our course of action was to:

1. Negotiate as best we could to get the amount lowered or removed.

2. Try to get the investor to agree to a promissory note instead of cash at closing.

3. Ask the Buyer to pay the cash contribution.

4. See if the Sellers could borrow the funds.

Unfortunately, none of these worked. So we had to revert to plan B, place the property back on the market and negotiate a new deal where the Buyer would pay the $10,000 Cash Contribution for the Seller. This is added to the purchase contract where the distribution of closing costs goes.

It took all of 3 days to find a Buyer agreeable to this. Now we simply place a $10,000 “Cash Contribution For The Lender On Behalf of the Seller” on line 104 of the Buyer side HUD-1. Then we place the $10,000 on line 404 of the Seller side HUD-1 as “Cash Contribution To The Lender”. Then we just add the $10,000 to the payoff amount to the Lender.

Done deal. Fully disclosed and approved by the Lender. And my Seller will avoid any future Deficiency Judgement on an investment property without having to miss any payments. Heck their credit score may actually go up!!! Sweet. Any questions?

Are you under water on your Florida mortgage?