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Cash At Closing?

QUESTION: Kasey in Florida and her husband are on Baby Step 2. She is putting her condo on a short sale and she might owe some cash at closing. She is nervous about that, and in the way she describes the situation, something sounds weird to Dave. He tells her how the process usually works.

ANSWER: There’s always the possibility that they ask for cash, but the vast majority—I don’t know what the percentage would be, but 70–90%—of the short sales that occur, the deficit is forgiven. That’s part of the short sale. Most people do not bring cash to the table in a short sale—not in today’s world.

In other words, the mortgage company looks at it and says, “We’re either going to take this deal or we’re going to have to foreclose on Kasey.” I assume you’ve stopped paying the payments, right? “We’re either going to have to foreclose on Kasey and get this property back, sell it for what we can, and then chase Kasey for the difference”—which, in Florida, is very tough to do; it really is—”but we’re going to chase her for the deficit and hope we can collect that, or we’ve got an offer here for about what the thing is worth. That’s about all we’re going to get out of it after we foreclose on her, so we might as well take that and just do this deal and forget it.” Then your portion is forgiven. That’s the normal short sale. That’s why I was asking about your lawyer with my head on tilt. It doesn’t make sense to me—the advice you’re getting.

You can keep some money aside if you want to try to buy your way out of this thing. It might be that you want to rent it and keep it and let the value recover if you’re going to have to put money in it. That could be another option to keep you from having to go through a short sale. It’s one way to look at it.

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