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Short sales, junior liens, and cash contributions

There are so many little details that need to be considered when you are processing a short sale. Don’t forget to ask for help and support, and remember to pay attention to the details; they can be pretty diabolical.

It’s the little things that matter most.

The devil is in the details, at least that is what they say. The other day I was reminded of that fact when helping a friend to complete the processing of her short sale. This friend had already received two approval letters from the short sale lenders–one from the first lien holder, and one from the second. She had even negotiated some additional terms (including a cash contribution) with a difficult second lien holder.

In short sale transactions with more than one lien holder, other lien holders will not just release their liens willy-nilly. This is probably their last opportunity to collect any money, so they want to get what they can from whomever they can. Often times, the first lien holder will offer the second lien holder enough money from the proceeds of the sale in order to get the second to agree to release their lien. And, other times, it is not so easy.

So, this second lien holder had agreed to accept six thousand from the first and another six thousand was offered up by the seller. All was good, and the agent had an approval letter from the second for $12000.

However, this is where the details get a little bit devilish.

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In order to be fully transparent, you need to disclose to the first lien holder (on the settlement statement) that the second is going to receive a contribution from another source. And, this agent had forgotten to clear the cash contribution with the first lien holder.

Remember this detail.

Any contributions to any parties relative to the short sale transaction need to appear on the settlement statement at closing.

In order to assure that the short sale transaction closes smoothly and to demonstrate transparency, it is important to clear all contributions with the first lien holder and get that clearance in writing. One easy way to do that is to send an email or a message to your short sale negotiator at the bank and ask whether a cash contribution would be permitted. Make sure to submit a settlement statement to the first lien holder that shows the contributions for their review and possible submission to the investor for whom they are serving the mortgage.

There are so many little details that need to be considered when you are processing a short sale. Don’t forget to ask for help and support, and remember to pay attention to the details; they can be pretty diabolical.

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Written By

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

33 Comments

33 Comments

  1. Chuck Sizer

    May 10, 2012 at 6:32 pm

    Here’s a tip… don’t do short sales!

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