When most borrowers hear the words “short sale,” they instantly see dollar signs.  They believe that the bank will bend over backwards for them and help them unload the house on other buyers.  While banks are incentivized to help you, they’re in business to make a profit.  So, if you’re in the unfortunate position of owing a bank money, expect to get squeezed a little.  Here’s what the lender may expect from you.

Money

If you have cash in the bank, a life insurance policy, even a retirement account, the bank may require that you use this money to repay the loan.  Now, the bank can’t force you to withdraw money from your 401(k), but they don’t have to agree to a short sale either.  So, expect this as a “seller contribution” if you seek assistance in the form of a cooperative short sale.

A Promissory Note

A promissory note is less of a sure-thing for a bank, but it is better than nothing.  With a promissory note, you promise to repay the bank the principal amount of the loan.  Sometimes, banks will agree to a 3 to 15-year payback of just the principal.

Promissory notes come with a “catch-22” for the bank.  If you haven’t repaid your mortgage, the lender may be uncertain or unwilling to do a promissory note for fear that they won’t get anything back from you.

You Don’t Get to Keep Your Toys

If you did a cash-out refinance, and used the money to purchase a snowmobile, boat, or RV, don’t expect to keep it.  The bank may require that you sell these things before it enters into a short-sale agreement with you.  And, before you get angry, remember that a foreclosure is a long, drawn-out process that will cost you and the bank more money than a short sale.

Filipino home (No Tuba Sold Here), 1945 Philippines. Snapshot taken by an American soldier (1) by John Tewell, on Flickr.  This work is licensed under a Creative Commons Attribution-NonCommercial 2.0 Generic License.

Do You Have a Financial Hardship?

If you have a financial hardship, guess what?  The bank may not be willing to do a short sale.  They want a seller’s contribution, and you have none if you have a financial hardship.  If, however, you have a hardship that’s not necessarily financial in nature, they might be willing to work with you.

This is especially true if you have some sort of stable cash flow and you’re working with NJ short sales realtors in your area.

A Deficiency Judgment

A deficiency judgment is the worst kind of seller contribution.  It means that a court has given the bank permission to pursue you for the amount left on the loan after the short sale is complete.  That’s right – you no longer have the loan, but the bank can come after you for the remainder of the money.

Banks tend not to do this unless they see no other way out.  However, they will try to secure one if they think they aren’t getting a fair deal or their profits are being squeezed too hard.

Above everything, banks want to walk away winners.  Your job is to walk away a winner, too.