Across Minnesota, thousands of homeowners are struggling to make their monthly real estate payments. Each month brings new challenges and home prices are becoming more and more depressed as foreclosures and short sales dot the Minnesota landscape. Many homeowners are looking at a short sale as the only way out of bad situation. Minnesota short sale REALTORS® are a great resource for people who have questions about short sales in Minnesota.
A short sale is done in order to avoid foreclosure in instances where the homeowner owes more on the mortgage than the house is worth. The worst thing a homeowner can do is to avoid taking responsibility for your mortgage commitment and bury your head in the sand. The short sale process can take several months to complete and the lender can always exercise their option to enter into foreclosure proceedings right up until the day of closing.
Financial hardships such as divorce, job loss or job loss could mean that the homeowner may qualify for a short sale. Short sales should only be attempted with assistance of a qualified professional. It is important to first understand the differences between a short sale and a foreclosure.
What’s the difference? First of all short sales involve asking the lender if they will accept less money than the initial value of the mortgage on the property. Unlike foreclosure proceedings, the seller does not need to be in default for a short sale to occur. The Minnesota homeowner must be able to provide evidence of legitimate hardship by presenting at least 2 months worth of bank statements, 2 years worth of tax statements and pay stubs for the past 2 months.
There are differences in how each option will affect your credit score and subsequent ability to obtain credit. For example, if you are way behind on your mortgage but have not been through a foreclosure and need to sell your home as a short sale it remains on your credit report up to 7 years. A Minnesota foreclosure will remain on your credit report for 10 years. Nate Green, Owner / Broker of Record for Blue Roof Real Estate in Arizona (an organization that assists homeowners with the short sale process), suggests that there is an average 2-year period following a short sale before one is able to buy another house. Furthermore, Green advised his clients that remaining current on your credit cards and other financial obligations and even paying them off following a short sale can have positive effects on your ability to obtain a new loan.
When do I start? As soon as possible after realizing that you are in need of assistance and you have explored all of your options. When you find yourself in a situation where you owe more than your home is worth and you are facing a financial hardship (job loss, illness, divorce) than you should attempt a short sale with the assistance of a qualified Minnesota REALTOR® that specializes in Minnesota short sales. Another circumstance that warrants the exploration of the short sale option is when you are already facing foreclosure and as you are several months behind on your mortgage payments.
What’s the process? The short sale process is a lengthy and time consuming one. Before a lender will consider a short sale, there are 2 things that must be determined. First the lender must consider your ability to make the mortgage payments. Then secondly they must consider the possibility that they will end up in the same position if they foreclose and attempt to sell the property. Any homeowner considering a short sale should seek the advice of a qualified and experienced Minnesota REALTOR®, an attorney, and a Certified Professional Accountant.
The homeowner must provide a hardship letter and supporting documentation to the lender. Wells Fargo, one of the nation’s leading lending institutions has established certain guidelines to facilitate the short sale process. They recommend a comprehensive package which includes the following:
- Agreement of Purchase and Sale and any attachments
- Clear escrow instructions
- Comparables, appraisals and other information available from the title company (you will likely be required to pay for the appraisal and other reports, since you are the one initiating the process)
- The Title-Search Report (which will show any second or third liens on the property and evidence that they have been settled prior to submission to Wells Fargo)
- Copy of the Deposit in Trust
Wells Fargo will likely retain the right to continue with foreclosure proceedings up to the scheduled closing date or the date that the foreclosure is due to take place depending which comes first.
Most lenders have a preference for dealing with a Minnesota REALTOR® as opposed to dealing directly with the homeowner. There are several reasons for this and professionals will advise you to work with a REALTOR® in order to eliminate difficulties in negotiating while under emotional duress. Furthermore, avoid dealing with a professional who is a friend or relative. Your Minnesota real estate agent® will assist you in providing the necessary documentation to the loss mitigation department of your lender and will ensure that the lender’s process is followed.
One negotiation tactic is for the homeowner to pay for these reports upfront in exchange for a written agreement from the lender that they will not pursue you for any money that is lost due to the short sale of the property.
What are the implications? At first it may seem a reasonable solution to secure a short sale however, there are long term drawbacks. There are tax consequences and your credit report will also be affected by a short sale. The negative credit note will remain on your credit report for 7 years.
Once you have a clear understanding of the differences between a short sale and a foreclosure, and have researched all of your options, then you should look into a short sale. The short sale process is very lengthy and involves a great deal of organization and paperwork and there is a risk that the lender can foreclose right up to the last minute. Taking responsibility for your situation is the best thing that you can do and the lender often looks favourably upon this effort.
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