Short Sale TREND ALERT: Banks are saying "Show me the money".

Promissory Notes and Cash Contributions are becoming very common in Short Sales

Over the past few months, I've seen numerous request for a Promissory Note and/or Cash Contribution in order to allow the short sale.  Many times this is requested by the investor (Fannie Mae, Freddie Mac, etc), the PMI company (Private Mortgage Insurance), or the 2nd mortgage lender.

Cash Contribution:  Your bank requires you to bring money to closing.  Most often I see $1000.

Promissory Note:  The more painful of the two.  You sign an agreement to pay, usually interest free payments for some number of years, usually 10-15 years.  The amounts I've seen have ranged from $8,000 to $110,000. Wiki Promissory Note.

Your options:

  1. Take the deal they offered.  Sometimes this is your best option.
  2. Counter offer with your best offer of what you can pay.  Sometimes they will negotiate, most often they will not.
  3. Refuse to contribute and refuse the note.  When this happens, the short sale is canceled and your house is back in your hands.  Let the house foreclose or work something out with the bank to become current on payments and keep the house.
  4. Go for round 2.  Cancel out the current contract, put the house back on the market, submit new contract to the bank, and hope/pray for a different response.  Lenders may get more serious when foreclosure becomes imminent.

This does not happen with ALL short sales.  The sellers with major financial hardship, obviously, are not receiving these terms.  Still have a good job and short selling due to a divorce, a job transfer, etc?  You are a candidate for a promissory note or a cash contribution.  Your short sale attorney will be able to determine your risk up front.

Posted by Brad Officer on
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