Home Buying in Ruskin>Question Details

bar21code, Home Seller in Ruskin, FL

I am the seller in a short sale, and I am being asked by the bank, as part of a stipuation in the deal to pay $5000 cash at closing,

Asked by bar21code, Ruskin, FL Mon Dec 17, 2012

Stipulation guarantees that the bank will waive any deficiency balance, the credit bureau will be told "account paid in full with less than full balance". This was just sprung on me at the last minute by my realtor, I had no expectation of having to put up any cash in this short sale. Can anyone tell me if this is par for the course? I owe around $150,000 on the house, and $125,000 is accepted offer on the house.

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Bar in Ruskin,
Short Sales are highly complex, convoluted, illogical process lacking transparency and a 'good faith' partner. There are many, many, many reasons for the request for $5,000. As Alma advised, make effort to 'see' this request from the bank. The 'bank' may or may not be the source of this request..
It is a tragic that you must go through this process for a $25,000 deficiency. That margin is so small I can't help but think other options were available.
By the way, your Realtor did not spring this upon you, the bank or the servicing company or the investor did. Your Realtor is only the messenger. (Unless this fee was buried in the addendum(s))
You have four choices:
1. Negotiate the amount lower
2. Refuse to pay and the bank/investor/ servicer responds, "Just kidding or "No Deal.'
3. Pass opportunity to buyer to pay the additional amount.
4. Escalate for review by higher authority.
The option most likely to succeed depends on the details of this highly complex real estate transaction. Be aware, in the 'Wild, Wild, West of Real Estate,' where there is an illusion of rules, anything can and does happen. Short sales....what a mess.

Take care that the advise you follow originates from those who actually are involved in short sales.

Best of success to you,
Annette Lawrence, Broker/Associate
Remax Realtec Group,
Palm Harbor, FL
1 vote Thank Flag Link Tue Dec 18, 2012

Borrowers WILL be forced to pay income tax on Short Sales if Congress does not extend the Debt Relief Act of 2009 which is set to expire midnight on Dec. 31st.

Right now the Fiscal Cliff issue has put the extension of the Act on the back burner. Maybe Congress will get arond to it, but if not, no more Bail Outs and walking away scott free from contractual obligations.

1 vote Thank Flag Link Tue Dec 18, 2012
You are walking away from your contractual obligations and promise to pay, there has to be some kind of negative that comes from what you are doing or being allowed to do.

If I were you, I'd hope the deal closes before Jan 1st or you could be looking at paying income tax on the balance too.

1 vote Thank Flag Link Mon Dec 17, 2012
These banks should hold out for part of their loss.

What if in the future banks were to contact those buying a home now for 200k who got a fixed rate of 3.125% rate and the house is then worth 250k and were to tell the borrower...

...Mr. Borrower, we loaned you that money at 3.125%, but since then rates have gone up as well as your house value, so we're going to need to raise your rate or we're going to stop accepting your payments and try to Short Sale your mortgage and take the house back? This loan is just not worth it to us at 3.125% when rates are now going for 5.5%!

Funny right?

0 votes Thank Flag Link Tue Dec 18, 2012
If you have the $25,000 difference I am surprised they will let you off for only $5,000. They are not required to accept anything less than the full amount that is owed. Good luck,

Jim Simms
NMLS # 6395
Financing Kentucky One Home at a Time
Web Reference: http://jamessimms.com/
0 votes Thank Flag Link Tue Dec 18, 2012
Like Annette, I'm shocked their holding out for another $5k on such a small deficiency. I recently closed a short sale deal where the deficiency was $1,275,000.00 and THEY didn't come looking for another $5k!! As others have suggested, paying the $5k may well be worth it to get out clean with your credit dinged as little as possible. If coming up with $5k is a problem, consider posing the problem to all parties with "skin" in the deal (seller and both agents) and see if they can help you find a solution (ie: anyone who really wants to get the deal to the closing table may be willing to share in the expense). Best of luck in getting out from under this house...Jim
0 votes Thank Flag Link Tue Dec 18, 2012
Your Realtor should have prepared you that this could be the case, and yes it is normal. Especially if the bank sees you have a bit of money in the bank when you submitted your bank statements. But consider that it is a great deal to trade $5,000 for full deficiency release! Pretty good deal if you ask me! If you don't have the cash, you can always try to counter the bank but tread lightly because depending on the bank, sometimes they will just say no and close the short sale file.

Liane Jamason, REALTOR, CDPE
Smith & Associates Real Estate
0 votes Thank Flag Link Tue Dec 18, 2012
You may want to hire an attorney before paying $5k if you don't already have an attorney protecting your interests.

Did you see the Demand letter from your lender specifically requesting the $5k? If not, contact your lender immediately if your Realtor cannot or will not provide you a copy of that letter. Unfortunately there are some less than ethical activities that go on with Short Sales, sad to say. If your lender says there is no such stipulation then you may have something else going on. If your lender does say you must pay $5k at closing then you may also want to consider keeping the property and getting a mortgage modification to lower your payment and keep the house. Rents are VERY high right now so it may be cheaper to stay in the house. There is also a Deed for Lease program that may allow you to stay in the house for market rate rents for up to 3 years. Contact your lender about that, too.

As far as tax consequences on the amount forgiven, if this is NOT your PRIMARY residence then you may owe tax on the amount forgiven. Also if you refinanced and pulled money out and did not put it back into the house then you may have to include the amount forgiven as ordinary income---even if it's your primary residence. Again, have an attorney at your side and/or a CPA before signing to sell your house via a Short Sale.

Hope this helps.

All the best,

PS To find out who actually owns your mortgage (note the bank that collects your payments is most likely not the true owner of the mortgage but a mere middleman servicer collecting a fee for managing the account and Short Sale. Do a MERS Lookup here:

If your mortgage doesn't appear on MERS then it's probably owned by Fannie Mae or Freddie Mac, go here to lookup: http://www.makinghomeaffordable.gov/tools/does-fannie-or-fre…
0 votes Thank Flag Link Mon Dec 17, 2012
You can of course counter with a different dollar amount although it is not unusual for a seller to contribute cash at closing or take a promissory note. Oftentimes banks will counter an offer with stipulations from the seller which your agent would be unaware of until they issue short sale approval.

As for tax/legal information those questions need to be addressed by the proper professionals.
0 votes Thank Flag Link Mon Dec 17, 2012
You will NOT be asked to pay income tax on anything:
You might GOOGLE; "debtreliefactof2009"

You should have been aware of the fact that Florida is a RECOURSE state:
Paying the $5000 may be worth it.
You may also offer to give the less; I would think that negotiation is possible.
My heart goes out to you; twice.

Good luck and may God bless
0 votes Thank Flag Link Mon Dec 17, 2012
You need to look your loan up on http://www.makinghomeaffordable.gov and find out if you qualify for the HAFA program. If so the bank is not permitted to ask you to contribute. If not, then it all becomes a negotiation. You also need to know the laws in your state with regard to recourse, in other words, can the bank seek a deficiency judgment against you for the entire balance. It would probably be best to seek the advice of an attorney so you know all your options and the ramifications of each choice under the law.
0 votes Thank Flag Link Mon Dec 17, 2012
There's a lot of tricky math that needs to be looked at to see whether this is a good deal for you. Under no circumstances should you put all the financial information needed to evaluate this question on the internet, so my suggestion for you is to go pay a credit counselor to go over the math with you.

If you're not broke, it's not uncommon for the bank to ask you to provide funds for closing. However, the difference between $150K and $125K is relatively small, and the long term damage to your credit needs to be considered.
0 votes Thank Flag Link Mon Dec 17, 2012
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