{"id":21598,"date":"2021-01-29T10:50:04","date_gmt":"2021-01-29T18:50:04","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=21598"},"modified":"2026-04-09T04:33:47","modified_gmt":"2026-04-09T11:33:47","slug":"buyer-what-to-do-if-your-short-sale-requires-a-cash-contribution","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-what-to-do-if-your-short-sale-requires-a-cash-contribution\/","title":{"rendered":"Short Sale Mortgage Holder Wants More Cash: What\u2019s a Buyer to Do?"},"content":{"rendered":"

At their best, short sales are complex transactions where the lender that holds the current mortgage on the home has the final say on the deal the buyer and seller agree upon. But things can get even more complicated if the lender wants additional cash from the seller to settle up beyond what\u2019s covered in the real estate contract<\/a>.<\/p>\n

As the buyer in the transaction, you might think this twist doesn\u2019t affect you, but it absolutely could. If the seller doesn\u2019t come up with more money, the entire deal could be derailed.<\/p>\n

What should you do if your short sale requires a cash contribution? We\u2019ve researched the topic thoroughly and discovered some possible options to help you see your short sale deal through to the finish. If you\u2019re considering making an offer on a short sale, it\u2019s a good idea to be prepared for such a scenario.<\/p>\n

\"A<\/a>
<\/a> Source: (fran hogan \/ Unsplash)<\/figcaption><\/figure>\n

What is a short sale?<\/h2>\n

A short sale<\/a> occurs when the homeowners owe more on their mortgage than the home is worth and are in danger of being foreclosed<\/a> on. Instead of foreclosing, however, the lender agrees to let the homeowners sell the house. It\u2019s a \u201cshort\u201d sale because the lender may settle for the proceeds even if they fall short of the remaining amount due on the mortgage.<\/p>\n

Lenders agree to short sales because it saves them the cost and trouble of foreclosing on the home and maintaining the property until they can sell it. However, in a short sale, the lender will insist on approving the deal between the seller and buyer.<\/p>\n

The lender\u2019s goal is to be sure it gets the most money possible out of the deal and to limit its losses. That can slow down the homebuying process<\/a> and complicate it because more parties are involved in the sale \u2014 the buyer, the seller, and the seller\u2019s lender or the company that currently owns the mortgage.<\/p>\n

Sometimes more than one department at the lender has a say in the deal, and those departments may not communicate well with each other.<\/p>\n

What causes short sales?<\/h2>\n

Short sales were common during and after the Great Recession, tapering off after 2010. That recession involved a housing bubble; home prices fell, and some people found their homes were worth less than the mortgage on them.<\/p>\n

While you don\u2019t hear as much about short sales these days, homeowners can still find themselves in that situation, especially when they take out a no- or low-down-payment loan and get overleveraged.<\/p>\n

Kelly Hollowell, an agent in the Chesapeake, Virginia<\/a>, area, who works with 75% more single-family homes than the average agent in her area, expects fewer short sales to come out of the economic downturn the COVID-19 pandemic has caused.<\/p>\n

Hollowell, who has 26 years\u2019 experience as a real estate agent, noted that home prices went up<\/a> during the 2020 downturn, rather than dropping as they did in 2009. Rising prices give homeowners more equity in their houses, so they\u2019re less likely to be underwater, owing more than the home is worth.<\/p>\n

So far, short sales don\u2019t seem to have increased because of the economic downturn caused by the pandemic. Homes in preforeclosure<\/a>, which would be likely candidates for a short sale, were down more than 80%<\/a> in November 2020 from 2019, according to RealtyTrac. The decline in preforeclosures is likely tied to loan forbearance rules<\/a> included in the pandemic relief CARES Act that was enacted early in 2020. However, there is no way to predict how much relief homeowners will receive in the future, or if the low numbers of preforeclosures will continue once the law\u2019s protections end.<\/p>\n

\"A<\/a>
<\/a> Source: (Karolina Grabowska \/ Pexels)<\/figcaption><\/figure>\n

What\u2019s a cash contribution in a short sale?<\/h2>\n

Sometimes, the lender in a short sale will ask the seller for more than the proceeds of the sale as a way to reduce their loss taken on the loan. This is known as a cash contribution.<\/p>\n

In some cases, the seller might have a second mortgage<\/a> on the house, and the lender holding that second mortgage is the one seeking a cash contribution.<\/p>\n

The size of the requested cash contribution varies, depending on several factors, including details of the mortgage and the seller\u2019s financial condition<\/a>. It could be as much as several thousand dollars, although the seller may be able to negotiate the amount down.<\/p>\n

When might a lender ask for a cash contribution in a short sale?<\/h3>\n

The lender is most likely to ask for a cash contribution when they know that the seller has liquid assets, such as money in a bank account. Fannie Mae<\/a> \u2014 a government-sponsored entity that purchases and securitizes mortgages in the United States \u2014 lists two instances<\/a> in which the mortgage servicer must request a cash contribution.<\/p>\n