Second Liens and HELOCs in Short Sales: How to Get to Yes
Discover how to navigate second liens and HELOCs in short sales effectively. Learn strategies to secure approvals and achieve the best recovery for all parties involved.
Short Sale Cash Incentives: How to Get Paid to Move at Closing
Discover how short sale cash incentives can help you receive relocation assistance at closing, providing financial support during your transition to new housing.
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Short Sale Cash Incentives: How to Get Paid to Move at Closing
One of the least known aspects of the short sale process is that homeowners can actually receive cash to help with relocation expenses at closing. Yes, you read that right - in a transaction where you're selling your home for less than what you owe, you may still walk away with money in your pocket.
This financial assistance, known as "relocation assistance" or sometimes "cash for keys," has helped thousands of distressed homeowners transition to new housing while avoiding foreclosure. Let's explore how these programs work and how you can maximize your chances of qualifying.
What is Short Sale Relocation Assistance?
Relocation assistance is a cash incentive offered by mortgage lenders to homeowners who complete a successful short sale. The funds are typically provided at closing to help cover moving expenses, security deposits on new housing, and other relocation costs.
While it might seem counterintuitive for lenders to give money to borrowers who aren't paying their full mortgage balance, there's a sound business reason behind it. Foreclosures are expensive for lenders: they involve legal fees, property maintenance costs, potential property damage, and often result in lower sale prices. By incentivizing short sales, lenders often minimize their losses compared to foreclosure.
How Much Money Can You Receive?
The amount of relocation assistance varies significantly based on several factors, primarily the type of loan and the investor who owns it. Here's what you can typically expect:
FHA Short Sales
- Up to $3,000 in relocation assistance
- Must be the owner-occupant of the property
- Must vacate the property by closing
- Property must be left in broom-swept condition
VA Compromise Sales
- Typically offers $1,500 in relocation assistance
- Must be the owner-occupant of the home
- Requirements similar to FHA programs
Fannie Mae and Freddie Mac Short Sales
- Standard relocation assistance of $3,000
- Fannie Mae may offer up to $7,500 in certain cases
- Property must be your primary residence
Private Investors and Major Banks
- Typically range from $1,500 to $10,000
- Some exceptional cases have received up to $40,000 (especially during previous housing crises)
- Terms vary significantly by lender
How to Qualify for Relocation Assistance
While each lender has specific requirements, there are several common qualifications for receiving relocation assistance:
1. Be the Owner-Occupant
In most cases, you must currently live in the property as your primary residence. Investment properties typically don't qualify for relocation assistance.
2. Demonstrate Genuine Hardship
You'll need to document your financial hardship through a hardship letter and supporting financial documentation. Legitimate hardships include job loss, medical emergencies, divorce, death of a spouse, or other significant life events that impact your ability to pay your mortgage.
3. Maintain the Property
You must leave the property in good condition, typically defined as "broom-swept clean" with no damage beyond normal wear and tear. Damage to the property could result in the reduction or elimination of relocation assistance.
4. Vacate by Closing
You'll need to move out of the property by the closing date specified in the short sale approval. Some programs may allow a short lease-back period, but this is less common.
5. Complete All Required Documentation
The short sale must close successfully with all required paperwork properly completed and submitted.
The Application Process
To maximize your chances of receiving relocation assistance:
- Work with a real estate agent experienced in short sales who knows how to negotiate relocation assistance
- Apply for relocation assistance at the beginning of the short sale process
- Ensure all hardship documentation clearly demonstrates your need
- Follow all lender requirements precisely
- Keep the property in good condition throughout the process
Tax Implications to Consider
It's important to understand that relocation assistance is considered taxable income by the IRS. You will typically receive a Form 1099-MISC reporting this payment, and you'll need to include it as "other income" on your tax return.
According to the IRS: "Cash for Keys Program income (Relocation Assistance), which is taxable, is income from a financial institution, offered to taxpayers to expedite the foreclosure process. Report this as 'other income' on Form 1040, line 21."
While this doesn't negate the value of the assistance, you should consult with a tax professional to understand the potential tax liability.
Success Stories
Many homeowners have successfully navigated the short sale process and received substantial relocation assistance. For example:
- A California family facing medical hardship received $10,000 in relocation assistance from their private lender, allowing them to secure a rental home while the primary wage earner recovered from surgery
- A military family with PCS orders received $7,500 from Fannie Mae's program, helping them transition to their new duty station without financial strain
- A divorced homeowner unable to maintain mortgage payments received $3,000 in FHA relocation assistance, providing enough for security deposits and moving expenses to a more affordable apartment
Maximizing Your Relocation Assistance
To increase your chances of receiving the maximum available relocation assistance:
- Work with real estate professionals who specialize in short sales and understand the various relocation assistance programs
- Be transparent about your financial situation and hardship with your lender
- Maintain timely communication and responsiveness throughout the process
- Keep detailed records of all communications regarding relocation assistance
- Understand your specific loan type and the typical incentives associated with it
Conclusion
While facing financial hardship and potentially losing your home is undoubtedly stressful, short sale relocation assistance can provide a valuable financial cushion during a difficult transition. This assistance can make the difference between a chaotic move with financial strain and a more organized transition to new housing.
If you're considering a short sale, be sure to ask your real estate agent and lender about available relocation assistance programs. With proper guidance and preparation, you can maximize your chances of receiving this beneficial financial support at closing.
Remember, a short sale is typically far better for your long-term financial health than foreclosure, and relocation assistance is just one more advantage this option offers to homeowners facing difficult circumstances.
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