Acceptable Short Sale Closing Costs
The servicer must specify in the list price guidance communication the types of short sale closing costs that may be deducted from the contract sales price. Allowable transaction costs typically include:
real estate sales commission customary for the market, which must not exceed 6% of the sales price of the property;
real estate taxes and other assessments prorated to the date of closing;
typical and customary local and state transfer taxes and stamps;
title and settlement charges typically paid by the seller;
seller’s attorney fees for settlement services typically provided by a title or escrow company;
wood-destroying pest inspections and treatment, when required by local law or custom;
HOA fees that are past due, if applicable;
buyer closing costs typically paid by the seller that must be usual and customary for the local market.
Allowable transaction costs also include any amounts authorized by Fannie Mae.
Closing of short sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6% of the sales price of the property in aggregate.
Unacceptable Short Sale Transaction Costs
Fannie Mae does not allow the following transaction costs:
fees paid to a third party to negotiate a short sale with the servicer (commonly referred to as “short sale negotiation fees” or “short sale processing fees”) must not be deducted from the sales proceeds or charged to the borrower. Additionally, the servicer, its agents, or any outsourcing firm it employs must not charge (either directly or indirectly) any outsourcing fee, short sale negotiation fee, or similar fee in connection with any Fannie Mae loan;
real estate sales commission paid to the borrower or the purchaser; or
buyer’s discount points or mortgage loan origination costs.
You can find this information and updates at https://www.fanniemae.com/content/an…nt/svc1219.pdf
What this information should tell you, is that if a Buyer on a short sale is asking for Seller Concessions, you need a detailed list of what those concessions will be paying for from the lender (fee sheet). The reason this is important, is that although a bank may approve your short sale without a line by line descriptions of Seller paid concessions, the final HUD will be required to list the items. If you discover the lender has included discount or loan origination costs into the Seller paid concession amount, your Final HUD will get rejected, and you will have to get the Buyer to come to the closing table with the difference. Better to know out of the gate to the Buyer can be prepared to save their money.
I remember trying to resolve this at the last minute on a short sale transaction. It was uncomfortable! I let the Buyer’s Agent know which transaction costs were acceptable to Fannie Mae and (I discovered later) they thought they could just sneak some unacceptable costs into the transaction without anyone noticing. At the end when they required to justify the concessions cost by cost, they had to revamp their plan. Although the Buyer’s Agent, the Lender, and I were willing to kick in some commission to cover the unexpected costs to the Buyer, Fannie Mae would not allow that either (Fannie Mae doesn’t allow agent commission to be paid to the borrower period). The end result, the lender had to reduce his loan origination costs by the amount the Buyer was short. Afterall, it was the Lenders hope that he could sneak costs by regardless of the warnings issued. We were fortunate that the lender was willing to do this. He recognized that he would be responsible for the transaction failure.
I started out taking the Buyer’s Agents word for it, that the concessions did not include any non acceptable transaction costs. Now, I have the lender put it in writing in the prequalification letter if I am representing a Seller or a Buyer in a loan I discover is government backed.
Also, if you ask for more than 6% commission, you are subject to negotiation. If you name 6% or less as your commission fee, they honor it.