Relocation Assistance: Why Some Short-Sale Approvals Include It

Sellers are often surprised to learn that a short-sale approval can include money for the person leaving. It sounds backwards. You are the one who could not pay, and the lender is offering something at closing.

It is not charity and it is not a trick. It is a business decision, and understanding the logic behind it makes it much easier to think about clearly, including the part where you should never count on it.

Free help first, and the fee rule

A HUD-approved housing counselor should be your first call, not your last. That counseling is free to the homeowner, the counselor has no stake in which outcome you choose, and they know which programs currently exist rather than which ones used to. Reach an approved agency through the U.S. Department of Housing and Urban Development or the national housing counseling hotline.

And the rule this whole subject attracts violations of: NOBODY SHOULD CHARGE YOU AN UPFRONT FEE to obtain relocation assistance, to apply for it, or to negotiate for it. There is no application you have to buy. Anyone promising to secure funds for a fee paid in advance is describing something you should walk away from and report to your counselor.

Why a lender would pay a seller anything

Compare the two endings from the lender's side. In a cooperative short sale, the property is marketed, shown, maintained, and handed over in reasonable condition by someone who wants the transaction to work. In the alternative, the lender may end up owning a property it has to secure, insure, clear, and sell itself, potentially after a period in which nobody had much reason to look after it.

Relocation assistance is a way of buying cooperation and a smoother handover. It exists because it can be cheaper than the alternative, not because the lender feels badly about your circumstances.

That framing matters, because it tells you what makes assistance more likely: a seller who engages early, keeps the property presentable, responds to requests, and moves the file along. None of which is a guarantee.

Where the money can come from

Different sources, and which apply depends entirely on your loan.

Some investors and government-backed loan programs have historically offered defined relocation incentives in cooperative short sales. Some servicers make discretionary offers on their own. Occasionally an amount is negotiated as part of the approval rather than drawn from a published program.

Programs change. What existed a few years ago may not exist now, and a program that applies to a neighbor's loan may not touch yours. This is precisely the sort of thing a housing counselor can check against current criteria, and precisely the sort of thing not to take from a forum post.

It shows up in the approval letter, or it does not

If assistance is part of the deal, it will appear in writing in the approval and on the closing statement. Nowhere else. A verbal indication from someone on the phone is not an entitlement, and a number mentioned early can change or vanish in the final letter.

Read the letter carefully and read every condition attached to it. Assistance is usually conditioned on things like completing the sale, leaving the property in agreed condition, and cooperating through closing. Conditions can be missed by accident, and a missed condition is how sellers end up with a different result than they expected. If the letter is at all unclear, that is a question for a real estate attorney, along with everything else in it that touches your liability.

How the rest of an approval is negotiated is covered in negotiating with the bank, and it is worth reading before you respond to any conditional approval.

Do not plan your move around it

This is the most important paragraph here. Never sign a lease, hire movers, or commit funds on the assumption that assistance will arrive. Nobody can promise you an approval, a timeline, or a payment, and a deal that dies pays nothing at all.

Plan your relocation on money you actually have. If assistance materializes at closing, treat it as relief rather than as budget.

Ask the tax question before you spend it

How a payment of this kind is treated for tax purposes depends on facts about your situation, and it is genuinely a question for a CPA or tax professional reviewing your documents and your return. Ask before closing where you can, so the answer informs your planning instead of surprising you later.

The same applies to any forgiven balance. Tax treatment of forgiven debt is not something to settle from an article.

Give the file its best chance

Assemble a complete package the first time, because incomplete files sit and a file that sits invites less generous outcomes. The documents a Claremont short-sale seller needs is the practical checklist for that.

Then keep the property in decent order and keep communicating. The cooperation the incentive is meant to buy is the same cooperation that makes an approval more likely in the first place.

And keep the alternatives open

An offer of assistance is not a reason to choose a short sale. Reinstatement, a repayment plan, a loan modification, or an ordinary sale if you have more equity than you think may each leave you in a better position, and no incentive is worth choosing a worse ending. A straight advisor will tell you that plainly.

For the full comparison, start at the Claremont short sales guide.

Anthony Grynchal has been licensed in California since November 2009.