Short Sale Closing Costs

Who pays for closing cost on a short sale? For transfer of dicuments? For home inspection? Thank you for your time.

1 Answer

A short sale closing will act just like any other closing on a normal sale.  The main difference in a short sale process and a regular sale process is that you will have three parties involved in a short sale; the Buyer, Seller, and the Seller's Mortgage Company. 

Typically in your sale negotiations, you or your Realtor is negotiating with the seller and/or their Realtor, and you come up with terms.  Those terms are both ratified by both parties, and you move forward to closing with those terms.  You may have negotiated all of your closing costs to be paid by the seller, and would happen at closing.  The difference in a short sale is that once the buyer and the seller have both agreed to terms, those terms now need to be sent to the seller's current mortgage company for approval.  Ultimately, the lender has the final say as to the final terms. 

Think of it this way.  In a short sale, the current lender is agreeing to accept a smaller loss by selling it for less then what is owed, as to avoid a potentially larger loss moving forward with a foreclosure.  They still aren't happy about losing money, but it could be worse.  In that same light, they still want to make that loss as small as possible, so they are only going to let go what they absolutely need to. 

For example, if you are looking at a short sale property listed for $200,000, and negotiate with the seller for a selling price of $195,000, and 3% in closing costs to be paid, and you both agree on terms, it now has to go to the seller's mortgage company for approval.  That can take 1-2 weeks, maybe shorter if you are lucky.  If the appraisal comes in at $215,000, the lender will look at that and realize that they can sell their property at $215,000, so why should they settle on $195,000 and 3% in closing costs.  Minimizing their loss would be to sell it at $215,000 and no closing costs. 

Since it up to the lender for the final approval of terms, it is often hard to get the seller/lender to pay for the closing costs.  In short, if no closing costs are agreed to, then you are responsible for paying the closing costs yourself.