Is there a particular formula that lenders use to determine how much they want the seller to contribute when approving a short sale.
I have done many short sales and this is the first one that has asked for seller contribution. I was just curious if there is a percentage or formula they use for determining this.
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It does depend on the servicer/lender/investor. Most negotiators will ask for lot's of things upon first real contact. They range from X% of the outstanding balance to an unsecured note for X% +. In every case I've been able to negotiate a lower amount and most of them with no amount. Recently I had a lender state that their guidelines were 8% of the outstanding balance which would have meant that my client needed to come up with around $9K. I was able to negotiate a big reduction which gave the lender $3k from the proceeds and a complete waiver of any deficiency.
First lenders know the cost of taking back a home. They must calculate the loss, including acquisition costs, carrying cost, the "imputed" interest and other holding costs as well as maintenance and sales cost. Once they know that number, they must write down the asset to the net value and take the loss at the time of foreclosure so if you do your homework, you know what offer will work for a buyer and the amount that will give the lender more via a short sale than with a foreclosure.
As a former bank CFO, I know what the lenders look for and can assure them that the offer that my client has accepted will net the lender much more than if they decide to foreclose.
Wow, Roberta that sounds painful.
It really depends on the financial situation of the sellers. I've had sellers who are out of work and neither the first or second asked for anything. I've also had a situation where the sellers were both making good money but getting a divorce. Neither could afford the home on their own but since they both made good money, the Credit Union wanted $20K cash at closing and and $80K note on a $137K shortfall.
In every case where the bank looks to play hardball like that I get a bankruptcy attorney involved. Firstly, I want my clients to know ALL their options and secondly I want the bank to know the sellers are considering action that will eliminate the debt in chapter 7 or reduce the debt in chapter 13. In both cases filing costs less than $3,000 so the bank should be willing to settle for that amount. In some cases we bend a little and go up to $5,000 since avoiding bankruptcy is worth a little.
I think it depends on if it's a MI situation wanting it too. I had a recent one where the MI company wanted 16K in cash at closing - based on my sellers IRA -(they flat out told me that) and we offered $1800 at closing and they took it - thankfully!!! So maybe 10-12% is some sort of guideline - at least it was in my case.
Good luck!
Hey Jeff,
That is correct. I just can't figure how they come up with their figures for what they expect seller's to contribute at closing. I did speak with the negotiator today who is handling my latest short sale and he said he basically looks at how much he thinks they can AFFORD to bring to closing and trys not to step outside that realm of possibilities.
Janice,
Most conventional lenders will limit seller concessions to 3% but you can try for 6%. Government loans such as FHA and VA usually will allow 6%. There is no magical formula that lenders use. To your continued success..
Sam