In a Florida short sale, the bank is already accepting a big loss on the difference between the unpaid mortgage and the selling price of the short sale home. Banks have more incentive to do a short sale than a foreclosure since they lose more money in a foreclosure.
Because of this, banks will most likely squeeze anything they can out of the seller and not the buyer, since the seller is the one who owes them money.
There are other reasons why banks might demand a seller contribution:
1. The seller has other assets or disposable income. Banks review a seller’s financial statement to determine the seller’s monthly income and expenses . If they see that the seller has some money left over after expenses, or other liquid assets, savings, or disposable income, they will ask for it.
2. The seller refinanced and pulled cash out of their home equity. If the seller pulled out cash from the home to buy an expensive boat or take a luxury cruise, then this is considered by the bank as a temporary setback and the bank may ask the seller to contribute. If the selling price of the home is not enough to satisfy the bank’s required net, the bank may require the seller to pay the difference.
3. The seller does not have a financial hardship. Some banks will agree to do a short sale if the seller has proof of a valid hardship which is permanent but not necessarily financial in nature. However, if the bank sees that the seller still has a strong cash flow, the bank may ask for a seller contribution.
4. Deficiency judgment. In the state of Florida, the banks have a right to pursue the seller for the difference between the sales price of the short sale and the unpaid mortgage balance.
Although banks have the right to ask for a seller contribution, they acknowledge that most short sale sellers do not have that kind of money, or they wouldn’t be doing a Florida short sale in the first place. Banks may accept an unsecured promissory note if the seller does not have sufficient cash to pay for the deficiency or seller contribution. Banks will often agree to non-interest bearing terms and a 3 to 15-year payback of principal.