We are starting to receive requests from lenders who ask for a seller contribution before a short sale can be approved. This trend is different from the days where a lender would be able to just review the seller’s financial documents to verify that they do not have funds available to contribute.

Is it ever a good idea for the seller to make a contribution?

In one of our short sales, Litton Loans, the junior lienholder proposed that the seller contribute to a promissory note of 5% of the principal balance, which amounted to $7,000. This would be a promissory note for 5 years, monthly payments with no interest. (about $117 per month).

The benefit to the seller would be that the loan would be marked fully satisfied on their credit report. In addition, a new “trade line” would be created for the promissory note, showing up as an on time loan. As discussions went on with the sellers, the amount requested was reduced to $3,000 and the term to 10 years ($25 per month).

This is one example where it was a good idea for a seller who is interested in rebuilding of their credit. In most cases, junior lienholders have the right to a deficiency judgment on the seller’s credit report, even if they have accepted a short sale. This proposal is one of true collaboration, where both sides received something of value. The bank retained the ability to collect up to $3000 in future payments, and the seller received the best treatment of their credit score.

What is your role as an agent, if the seller makes this request?

As a real estate agent, your role is to facilitate the sale of their home, and in this case through a short sale. Keep in mind that a short sale has tax and legal consequences. Given that you are not a CPA or an attorney, your role is to make sure that your seller consults with a tax advisor and a real estate attorney before you take the listing. If in the process of negotiating with the bank, and you receive a request for a seller contribution (in cash or a promissory note), have your client review the proposal with their attorney.

The bank will want to place a call into the seller, in order to negotiate. If your client feels the slightest bit uncomfortable with speaking to their lender, set up a conference call with the bank, the seller, and their attorney. We had a situation where an attorney participated in a conference call, and got a $10,000 seller contribution request waived by illustrating all of the components of the seller’s hardship, which contained employment, medical, and financial reasons.

Article Resource: http://whbsolutions.com/blog/

Author's Bio: 

To learn more about how to qualify the best candidate for your short sale transaction visit whbsolutions.com.The number one factor in becoming successful in Short Sale Education, Short Sale Success and Short Sales is to learn how to pre-qualify your deal which includes finding the right buyer.