Short Sale Basics Part Three: The Net Payoff
(This is part 3 of 5 of the short series entitled Short Sale Basics)
The Net Payoff
Let’s assume that the house you’re about to sell receives an offer of $100,000 and you owe $200,000. I can’t stress this enough. For the purposes of obtaining an approval from the lender, the deficiency DOES NOT MATTER. The bank, nor anyone else for that matter, in terms of selling the home does not care how much more is owed.
What they DO care about is what the home is worth, based largely on a 3rd party opinion of value, compared to the Net Payoff. The net is the amount of money the bank will recover once all closing costs are subtracted from the sales price agreed upon by the buyer and the seller.
In our example, the sales price bring $100,000 to the table. Some of that goes to the brokers for their services, the title and escrow company (in Arizona they are combined,) perhaps an attorney or negotiator, the city or county for taxes, a 2nd mortgage, and perhaps other entities that have an interest in the property. A house cannot transfer title if it is cloudy.
All records of where money goes in a real estate transaction are required by law to be reported on a HUD-1 Estimate. This provides full disclosure to everyone involved in the transaction and is required by law.
Normally at the bottom of a HUD-1, there is a line that reads, “Cash to/from Seller” that has a positive number in it. In other words, money left over after selling the house. In a short sale this line needs to read ZERO, as all funds have been allocated already, with a majority of them going to the investor who holds the note on your house.