If you own a home in Minnesota and are thinking about a short sale the first thing to do is contact an experienced short sale agent.    Here is what to expect.

1.  A Long Wait. The best short sale REALTORS® in Minnesota may be able to speed up the process by utilizing their loss mitigation contacts at banks such as Wells Fargo and ASC, but you still need to be prepared to wait.  The banks are processing millions of short sale requests and it takes a long time to process all of the paperwork.

2.  Documents, Documents and more Documents. Your lender will require a lot of documentation regarding your financial situation before they will consider a short sale of your Minnesota condo, single family home, town house or investment property.  Be prepared to produce tax returns, bank statements and pay stubs.  They will want a letter explaining why they should consider a short sale called a “hard-ship letter” as well as an itemized list of your monthly expenses.  In addition you will need to provide an authorization letter to your Minnesota REALTOR® which will enable him to negotiate the sale with your bank.  They’ll want a copy of your listing agreement; purchase agreement, a bank approval letter from the buyer showing that they have been pre-qualified to purchase the property.  The list goes on…  Your Minnesota short sale expert will provide you with a complete list of everything required.

3.  Multiple Buyers.  Due to the length of time involved with obtaining approval from the lender it is very common for the buyer to lose patience and cancel their purchase agreement.  A good Minnesota REALTOR® will have back up buyers ready to step in pick up where the original buyer left off.

4.  Tax Consequences. Your Minnesota short sale professional will be able to discuss some of the potential tax consequences of a short sale.  The tax consequences will vary depending on your unique situation and will vary depending on if the property you sold was your primary residence or an investment property.  Although your agent will provide you with some of the general rules it is important that you consult your accountant regarding tax implications of a short sale.

5.  Legal Issues. As hard as your agent may try to negotiate with your bank, it is not always possible to completely limit any recourse your bank may have in collecting a deficiency for the remaining balance they are owed.  If you have only one mortgage you don’t need to worry; your bank will not be able to come after you for a deficiency.  Typically the issue arises with a second and/or third mortgage.  Let’s assume the following scenario: You have a first mortgage for $200,000 and a second mortgage for $80,000.  Your Minnesota real estate agent finds a buyer willing to pay $150,000 for the house.   If the first mortgage agrees to a short sale, they will not allow you to pay anymore than $2500 to the second mortgage; some won’t allow more than $1000.  In our example we will eliminate closing costs, real estate commissions, etc. for the sake of simplicity.  The first mortgage receives $147,500 and the second mortgage receives $2500.  Because the second mortgage received such a small percentage of the total amount owed, they are not happy.  They may decide to pursue legal action to collect the remaining balance owed.  If you are sitting on some cash, your real estate agent may be able to negotiate a settlement to eliminate any future financial liability to your second mortgage by offering them between 10% – 20% of the amount they are owed as a settlement.   If you pursue this option be sure to consult with a tax professional.