How much does a short sale cost?
Anyone who has received a Notice of Default or has missed a few payments on a mortgage gets lots and lots of mail. Those folks get mailings that look like checks but are just teasers in order to elicit a call to a third party loan modification company. There are also postcards and flyers from real estate licensees offering to short sale the home for free.
The Beatles covered the song Money (that’s what I want) and it begins with the lyrics “The best things in life are free.” Let’s be clear, however: a short sale is not one of the best things in life and it is not free!
While it is true that in many short sales the seller may be able to participate in the transaction at little or no cost, this is not a certainty. There are potential costs associated with the short sale transaction. Those potential costs should be explained to the seller at the listing appointment or the listing consultation in order to assure that no one is under the false perception that the short sale is free.
Here are a few potential costs that can be associated with the short sale:
- Homeowner’s Association Dues, Transfer Fees, and Document Fees. Frequently the short sale lender will not pay any of the costs associated with a Homeowner’s Association. Additionally, in some states, association document fees are required up front, are the obligation of the seller, and cannot be billed to the short sale transaction.
- Settlement Fees. Sometimes certain investors have a cap on the amount that they will allow towards settlement fees, such as escrow services and title insurance. If the amount that the bank will pay is capped, someone will have to pay the difference in order for the transaction to close.
- Cash Contributions. In certain circumstances, the lien holders may request a cash contribution. Sometimes the cash is required in order to meet a net amount not met by the offer itself. Other times, if the lien holders know that the seller has cash, the lien holder may be interested in a cash contribution in order to sweeten the pot. I’ve also even seen lien holders that will only waive a deficiency if they receive an additional cash contribution.
- Pest Control, Home Warranty, Repairs. Depending upon the buyer and the contract, the seller may be asked to pay for some other costs associated with the transaction—termite inspection, a home warranty, or some repairs.
The items that I have listed here are just a few of the potential costs associated with a short sale. To state that a short sale is free to the seller or for an agent to pitch that s/he guarantees a short sale with no cost to the seller is virtually impossible. Many a short sale closes with no cost to the seller. But, there are some unknown factors that come up during the process. Sellers need to be prepared for the fact that there may be some costs involved. After all, let’s get real. Debt settlement generally involves a little bit of cash.
Sheila Rasak
November 23, 2010 at 9:36 am
I mostly agree, but that being said, almost everything in life is negotiable (not death, not taxes). My transactions have mostly been with sellers who couldn’t possibly come up with some of the added costs that a lender has asked. Either the buyer agrees to cover these costs or the lender relents as a few bucks need not break a large transaction that the bank understands is in their favor. It’s all about clear communication. I can do many things, but squeezing blood out of a turnip isn’t one of them.
Rob McCance
November 23, 2010 at 9:57 pm
Melissa,
Very true.
Last year, I had a SS fall apart due to back HOA ($7k). Nobody was willing to pay it. I was representing the buyer.
On another deal – I just read a 2nd mortgage short sale approval letter from BoA the other day and the first paragraph states we will accept $3,000 for this $47k dept and remove the lien.
Next paragraph says “mr seller, you now will owe BoA $44k and please contact us immediately to secure this debt.”
Two examples of it’s definitely NOT FREE!
There are many more.