The scenario has become all too common. The Minnesota home you bought for $300,000 is now worth only $225,000. You are in what professionals in real estate call an “upside-down house” – you owe more on the mortgage than the house is now worth. If you cannot ride out the current storm financially, you may be considering a short sale to avoid foreclosure.

A short sale is the sale of a house at or just below market value that falls short of the balance due on the mortgage. The lender takes a loss, but not as much as a foreclosure process. You take a loss as well – you walk away with no money earned from the deal – but in many cases you are free of the debt, if you hired an experienced short sale agent. A short sale is not always the best course for everyone. You will need expert advice to decide, but here are some basic pros and cons of a short sale.

Pros of a Short Sale on your Minneapolis Home:

• You are relieved of paying overblown monthly mortgage payments.
• In some cases, the lender may forgive the difference in debt between what you still owe and the final selling price.
• You are spared the lengthy and traumatic foreclosure proceedings.
• Your credit score could be less damaged than if you had gone through foreclosure – depending on the lender’s actions.
• You can re-qualify for a new mortgage more quickly (about two years) than you would after foreclosure (about three to five years).
• You are more likely to escape bankruptcy.
• If the short sale occurs between January 1, 2007 and December 31, 2009 you will not be taxed on the debt forgiveness amount.
• If you are not able to pay your mortgage premiums, or work with the lender to lower monthly payments, a short sale can be the best case scenario, even though it means losing your home and your investment.

Cons of a Short Sale on your Minneapolis Home:

• The lender is not obligated to grant a short sale.
• You must show proof that you are no longer able to make your mortgage payments, and the proof must be reasonable. The lender will not approve a short sale if you gambled away your savings. A few examples of hardship that a lender will see as legitimate are illness, divorce, or a job loss.
• The lender will make sure you do not have any recourse – savings accounts or other assets – which may help pay off your debt. It’s not fair to walk away from your debt because you don’t like high payments and you don’t want to deplete your nest egg to pay them.
• You don’t have to be in default of your loan to be approved for a short sale, but it helps, if nothing else than to prove you can’t make the payments. If you are in default, you may have less time to jump through all the necessary hoops. A good short sale agent will negotiate for more time, and lenders often relent in hopes of recouping some of the loss.
• A short sale is anything but short, and can be stressful as you wait for weeks for the lender to respond. The response time depends on how quickly you put together the necessary papers, how adequately you provided the right information, and the lender’s ability to reach your file – along with a backlog of many others in your situation. You need nerves of steel.
• Lenders are notorious for not communicating enough about the approval process for a short sale.
• If your home has liens, second mortgages, or a home equity line of credit, each lender will have to be consulted for approval – which takes considerable time.
• Once the lender approves the short sale, a successful transaction depends on a reasonable offer from a buyer, and their readiness with an approved loan.
• Because the lender is losing money on the deal, they might require that the realtor or broker take a smaller commission. They also will probably not approve payment of closing costs, which might put a deal with a buyer in jeopardy.
• The lender may require you to sign a promissory note for the debt forgiveness in order to approve a short sale.
• The lender may pursue repayment for the debt forgiveness after the short sale goes through.
• Your credit score could take just as hard a hit as it would if you went through foreclosure. Consult legal and tax advice if salvaging your credit score is the only reason for a short sale.
• You could be taxed on the debt forgiveness if the property sells for more than 2 million, or is not your primary residence. After December 31, 2009, unless a new law for tax relief on debt forgiveness is passed, the debt forgiveness is seen as taxable income and you will have to pay taxes at the normal rates – which could be significant. Consult a tax professional.

A short sale is a difficult process with many details the average homeowner is not aware of.  If you are facing financial trouble and selling your home is necessary, consult professionals who are experienced and have a history of successful short sales.

Many home owners in Minnesota have heard the term “short sale” when referring to a house that was sold for less than what was owed to the bank or mortgage company.   For most people a short sale is preferable to a foreclosure; more and more Minnesota home owners are looking for short sale experts in Minnesota to guide them through the process of negotiating discounted payoffs and lien releases from banks.  Short sales can be negotiated from local Minneapolis banks including TCF Bank and Interbank as well as large national banks and mortgage companies such as Wells Fargo, ASC, EMC, Homecomings, Associated, and Aurora.

So, you’re probably wondering why would a Minnesota bank or national lender agree to accept less than what you owe them as payment on the loan.  The simple answer is, “What choice to they have?”  With literally millions of condo’s, town homes, single family homes, and investment property around the country and in Minnesota “upside down” or heading toward foreclosure, a bank, like any other business simply looks at their options and selects the one that they believe will most positively affect their bottom line.

The best source of free advice regarding short sales in Minnesota are real estate agents, better know as REALTORS®.  A Minnesota REALTOR® that specializes in short sales can answer all of your questions and help you develop a strategy to sell your house and negotiate the short sale with your lender.  The majority of Minnesota real estate agents have minimal experience negotiating short sales, so be sure to ask your Minneapolis agent how many short sales they have closed.  If they say one or two, keep looking until you find someone who has done at least 10 deals.  I’ve worked with some of the best short sale agents in Minnesota, so if you’re looking for a recommendation let me know.

A short sale negotiation can take between six and twelve months.  I know it sounds crazy but with millions of home owners contacting their banks for loan modifications and short sale negotiations, the banks are completely overwhelmed.

Think you can contact just any Minnesota real estate agent to assist you with a short sale?  Think again. Negotiating a short sale is different than traditional real estate and working with a Minnesota short sale agent is essential.  I’ve heard from a number of people who made the mistake of working with a real estate agent without short sale knowledge and it was a mess.  Here are some examples of what can happen:

“I ended up at the closing table and was expected to cover $6000.00 in back taxes.  I thought my agent has already negotiated this with the bank.“

“My agent didn’t tell me that I might still be liable for a deficiency balance on my second mortgage.  Six months later my bank sued me.  I felt like my agent didn’t have any idea what was going on.”

“My agent had never done a short sale deal before and we had multiple delays because he didn’t submit the correct paperwork to the bank.”

“The bank foreclosed on my house.  I learned from a friend of mine who used a short sale expert that his agent was able to stall the foreclosure by five months.  He really worked the bank and was able to buy the time needed to close the deal.”

Q: Do I need to be behind on my mortgage to negotiate a short sale on my house in Minnesota?

A: No.   Contrary to what many people believe many banks will still negotiate a short sale even if you are current on your mortgage.  Obviously, they will be more motivated if you’ve missed payments but it is not a requirement.

Q: I’ve heard a short sale will destroy my credit.

A: Your credit score is based on a variety of factors.  I’ve dealt with some short sale experts in Minnesota who have successfully negotiated short sales for their clients with no missed payments.  The result on the client’s credit score was essentially zero.  Missed payments are the primary issue affecting credit score.  If you wait too long too try to negotiate a short sale and you end up in foreclosure; the credit consequences will be far more severe.

Q: I’ve heard a short sale can take up to a year.  Is this true?

A: It is possible for a short sale to take up to a year depending on the banks involved.

Q: Can my bank sue me for a deficiency if I negotiate a short sale on my house in Minnesota?

A: The agents I’ve dealt with try extremely hard to negotiate the debt so that the client doesn’t have any further financial liability.  If you only have one mortgage on your Minnesota home you can pretty much be assured that you won’t have any future financial liability associated with the property.  The challenge typically is when a client has two or three mortgages on the property.  It is best to discuss your situation with a Minnesota short sale expert to help you develop a plan to deal with your lenders.  I’ve dealt with some of the best short sale real estate agents and brokers in the Minneapolis and St Paul area and surrounding suburbs.  If you would like a referral, please contact me.

Q: I waited too long lost my house in foreclosure and now the second mortgage is suing me for a deficiency.  Now what?

A: We don’t give legal advice, however some of our clients have had luck negotiating the debt with a lump sum payment of between 10% and 20% of the balance owed.  Another option is always to file bankruptcy.  The best thing to do is consult an attorney.

Q: Does a short sale cost me any money?

A: No.  Your Minnesota short sale REALTOR® will negotiate the commission with your bank.  You won’t be expected to come to closing with any money.