Short Sale Cash Contributions

When doing a short sale, Borrowers (Sellers) are often required to make a cash contribution to the Investor or Mortgage Insurance Company in order for the Short Sale to be approved.  Some of the circumstances that would cause the lender to ask for this are as follows:


  1. The borrower is not late on their payments.
  2. The borrower has a good credit score and is current on their bills.
  3. It’s an investment property.
  4. A contribution is required in order to waive the deficiency.
  5. They have cash on hand and/or large retirement fund accounts.


There could be reasons other than those listed above.

Sellers may be asked to make a large cash contribution in order to avoid a possible deficiency judgement in the future.  The Sellers had no money but were current on their payments and it was an investment property.  Not having the cash on hand means the sellers can try to negotiate to get the amount lowered or removed, request the use of  a promissory note at closing instead of cash, ask the Buyer to pay the cash contribution, or try to borrow the requested amount.

If none of these ideas are accepted, the short sale will not be approved and the house can go back on the market.  This time the seller would negotiate all new deals with the Buyer paying the Cash Contribution for the Seller. This is added to the purchase contract where the distribution of closing costs goes.

There would be a Cash Contribution For The Lender On Behalf of the Seller on line 104 of the Buyer side HUD-1.   And on line 404 of the seller side there would be a Cash Contribution To The Lender.   The same amount would be added to the payoff amount to the Lender.


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