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
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.
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.
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%!
NMLS # 6395
Financing Kentucky One Home at a Time
Liane Jamason, REALTOR, CDPE
Smith & Associates Real Estate
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
As for tax/legal information those questions need to be addressed by the proper professionals.
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
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.