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.
