Will The Short Sale Lender Request A Cash Contribution?

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

Well that's a great question. Making a cash contribution and/or signing a promissory note is called "Participating in the loss". Whether or not you are asked to participate in the loss is based on several factors. Your.....

  1. Cash reserves
  2. Credit score
  3. How delinquent you are
  4. Income level

As of November 1, 2012 the Federal Housing Finance Authority intiated new Streamlined Short Sale Guidelines that apply to all Fannie Mae and Freddie Mac mortgages.

In a nutshell:

          Cash Contributions - Borrowers that are less than 31 days delinquent MUST make a cash contribution to the loss.  And borrowers more than 90 days delinquent and a credit score of less than  620 at the time of the evaluation are not required to make a contribution. Specific guidance on “borrower contributions” where required, including how to calculate the contribution amount and making contributions MANDATORY where the borrower is 31 days or less delinquent. The guideline here is cash reserves of greater than $10,000 or 6 times the total monthly mortgage payment will trigger a contribution by the borrower.

Here are the Fannie Mae Standard Short Sales/HAFA II Short Sale Guidelines.

Here are the Freddie MacStandard Short Sales/HAFA II Short Sale Guidelines

Other Investors and Lenders may have their own guidelines. Hopefully most will follow suit and implement the FHFA Guidelines.If you asked to make a contribution it can be negotiated. However my experience is that if they ask for a cash contribution and/or promissory note you will have to give them something.

One thing to remember is that you signed a promissory note when you took out the loan. This document is your promise to pay. If the lender is willing to forgive the Deficiency and relieve you of any future liabilty then signing a new promissory note of say $20,000 (with zero interest) to replace an existing note of a much higher value is a good deal.

Don't let a lender's request for you to "participate in their loss" throw you for a loop. Just negotiate the best deal you can get and then move forward. Aslo, remember that if you truly do not have the financial ability to pay..... they probably will not ask you to make a contribution.

I hope this helps.



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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Jon Zolsky, Daytona Beach, FL 11/28/2012 10:57 PM
  2. Gabe Sanders 12/02/2012 07:20 PM
ActiveRain Community
short sale faq
streamlined short sale

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Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

They change the rules so often. Thanks for the information. I will bookmark this and share with others.Suggested.

Nov 28, 2012 09:07 PM #1
Jackie Connelly-Fornuff
Douglas Elliman Real Estate in Babylon NY - Babylon, NY
"Moving at The Speed of YOU!"

I had an investor client that had a promissory note of $10K to be paid in 10 years. Good deal is right. He took it and ran. Smart.

Nov 28, 2012 09:36 PM #2
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Bryant - thank you for an excellent post. Looks like the time of strategic default and walking out with excellent credit and no participation in the loss is gone.

Want to get out clean, first get really dirty

Suggested. Reblogged

Nov 28, 2012 10:52 PM #3
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude


Good information as always. I think many short sale sellers, especially those with financial wherewithal, do not undertsand that this may be a condition of a successful short sale. I think it's reasonable in some circumstances.


Nov 28, 2012 11:04 PM #4
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

It's all about setting he right expectations at time of listing. My sellers agree to contribute all the time. They understand that it may cost them to do a short sale. They understand this and have no issue with it. If they have an issue I don't take the listing.

The folks that truly can't afford a contribution rarely get asked to make one.

Nov 28, 2012 11:38 PM #5
Michelle Carr Crowe,Altas Just Call...408-252-8900!
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Bryant, in my experience, almost every negotiator asks the sellers to contribute at some point and I have to point out the impossibility of this in their financial position. However, strategic short sellers-it's a different story.

Nov 30, 2012 04:55 PM #6
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Bryant, after the sale, I have heard that promissory notes are sometimes negotiated down further for an immediate payoff. One for $20,000 was reduced to $5000 and everyone was happy.


Dec 01, 2012 11:24 AM #7
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

That's been my experience too Sharon.

Dec 02, 2012 04:40 AM #8
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