How Can I Get Cash for Doing a Short Sale?
The Cash Incentives Banks Offer and How to Qualify
Question: How can I get cash for doing a short sale?
A reader from California asks: "My buddy says his bank paid him $25,000 to do a short sale. Let me tell you, I could sure use $25,000. I'm in debt up to my eyeballs. I owe twice as much as my home is worth. My home is about as underwater as they come. I'd like to dump it and move out of this God-forsaken state. How can I get cash for doing a short sale?
Answer: When short sales started creeping back into real estate sales in 2005, many sellers asked how they could make money from a short sale. The popular belief was that sellers couldn't profit from a short sale — however, there are actually a few ways that sellers can get paid to do a short sale. Not all of them are legal, though, so be sure you're following the law.
If you're in doubt about whether a payment to you is legal, make sure the payment you receive is reflected on your HUD-1. Most sellers get into trouble with short sale fraud by deceiving a lender or withholding information from a lender. As long as the money you receive is noted on the HUD-1, then you're relatively safe.
Getting Cash for a HAFA Short Sale
The best-known cash incentive program for a short sale is a HAFA short sale. This is a government program: Home Affordable Foreclosure Alternatives. It's part of the former President Obama's Making Home Affordable Program, except it makes your home affordable for somebody else.
If your lender participates in HAFA and you qualify for HAFA, then you could receive up to $3,000 at closing. I suspect many banks build the $3,000 cushion into the sales price, so a buyer pays a little bit more for the home, to put that extra money into the seller's pocket.
I know this because I once received approval on a Bank of America short sale that was supposed to be a HAFA and was processed as a regular short sale by mistake. I noticed the relocation incentive was missing from the worksheet counter, and it didn't reference the HAFA program. When we finally received approval for HAFA, the sales price was $3,000 higher. So, buyers of a HAFA short sale beware, you might be paying the seller's relocation fee.
How to Get Cash for an FHA Short Sale
If you have an FHA loan, you might qualify for an FHA short sale. FHA short sales are known as a preforeclosure sale, and they are typically pre-approved by HUD. The bank will appraise your home and agree to do a short sale provided you receive an offer that nets HUD a minimum of 88 percent of appraised value.
The cash incentive paid to a seller varies and depends on:
- The type of loan.
- The seller's financial situation.
- The guidelines inherent in the portfolio, among other unknown factors.
I've seen cash incentives paid to sellers that range from $750 to $1,000, but it doesn't mean a seller might not receive more. Agreeing to leave the home in good condition and closing on time are the two main requirements.
Chase Bank Pays Cash Incentives for Certain Short Sales
It would appear that Chase Bank pays cash incentives for old Washington Mutual loans. It's rumored that payments are made because of a lawsuit against Washington Mutual but I have not called Chase to confirm the rumors, because I don't believe a spokesperson for JP Morgan Chase would confirm nor deny them.
Payments to Chase Bank customers range from a few thousand to $25,000 to $35,000 and possibly more since there is really no way to track this data. If your original loan was with Washington Mutual, you have a financial hardship and you're underwater, it's certainly worth it to apply for a short sale in hopes of receiving a cash incentive.
Wachovia Bank Pays Sellers To Complete a Short Sale
If your mortgage is a Wachovia Bank loan or an original Golden West Financial or World Savings, you are a prime candidate to receive a cash incentive. Although Wachovia Bank is now owned by Wells Fargo, it continues to pay sellers for short sales, providing certain criteria are met. For example, the bank might insist that the seller close by the contract date in order to earn the cash bonus, which ranges from $1,000 to $7,500.
Litton Loan Servicing Pays Select Seller Incentive for Short Sales
Litton Loan Servicing takes a proactive approach. Litton has been sending letters to prospective candidates for short sales, offering an incentive in the letter. This cash payment varies and can be as much as $5,000, but sellers need to comply and follow every guideline set forth in the letter.
CitiMortgage Offers Seller Incentive for Short Sales
A seller in San Diego reports being offered $35,000 by CitiMortgage to do a short sale. This is not a case in which the seller had thought about a short sale. Citi contacted the seller directly by mail. If you see a letter from CitiMortgage in your mailbox, don't throw it away.
BofA Rolled Out a Cooperative Short Sale Program That Pays Sellers
Bank of America also wants to clean out its inventory of underwater homes. Out of all the banks that approve short sales, Bank of America is one of the best for implementing innovative systems. The Bank of America Cooperative Short Sale pays sellers up to $2,500 to do a short sale and, in most instances, requires only a financial hardship letter.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.