Short sale, what are they and what do they mean? Still getting people that have no idea what the difference is between a Minnesota short sale and bank owned property. Easy, a bank owned/REO property is owned by the bank and has been through the foreclosure process already. A Minnesota short sale, the owner is upside down on the mortgage and there isn’t enough funds to cover the cost of the liens and the cost of the house when it is sold.
How do I know if I need a short sale
It’s actually quite simple, if you owe more on your house than what it is worth. It’s important to point out that a Minnesota short sale may not be for everyone. A short sale should try to be avoided at all costs mainly because of the negative impact on credit and tax consequences. After having a market analysis is done on the property and if in fact their is negative equity on the property and a short sale may be the only answer.
First before you decide on short sale, try these options:
- Keep the property a lot of property is not worth what people bought it for. The best solution is to hold onto the property
- Bring Cash to Closing Sell the property and bring the difference to closing. Avoid credit issues if you have the cash reserves
- Workout with Lender They don’t want to foreclose on homes, it costs a lot. On the other hand, few lenders are willing to do workouts.
- Deed In Lieu Offer the house back to the lender in return of the note. I haven’t heard this working out to much but might benefit the lender because they can list the house a little quicker. It is worth a try.
If all else fails, then a short sale may be the only route to take
Most short sales never get approved, banks are just inundated with them right now and are not properly staffed to handle them. Getting approval is getting harder to get, I have heard that lenders are trying to spread their losses around or wait for that bailout money. Not sure how that will help them out, each house that goes to foreclosure is said to cost a lender about $40,000-$50,000. So I don’t know why they hold out on them except some are thinking they can recoup more costs if they sell it themselves after foreclosure.
Be upfront with the lender or agent that is representing you in the sale of the house. The absolute worst thing that you can do is withhold information.
Get ready to find a lot of stuff to submit to the lender. It is almost a never ending amount of documents to clear conditions from the lender. Get ready to provide anything and everything for the mortgages, besides the 1st mortgage, is there also a 2nd? You will have to provide information on any lines of credit that may be open. Also make sure to have the most recent copy of your property tax statement and association dues if available.
Recourse vs Non-Recourse Loan
If your loan is in deficiency the lender may have recourse against personal assets if the short sale is accepted. This meaning you are held liable for the difference in the price the lender is asked to forgive. In a non-recourse loan, the lender is
I think I might have to dive into a part two or three
As always, this may not apply in all circumstances. All short sales may not be like this. If you seek legal advice, talk to an attorney. If you seek tax advice, talk to a tax professional.
If a Minnesota short sale is something that might be worth a try, I would be happy to answer any questions that you might have or point you in the right direction.
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I like how you lay out the 4 main options, that’s good to look over how to decide.