Short Sales in Minnesota FAQ
Bad things happen to good people. Whether it's from an exotic loan, loss of job, an illness or personal tragedy the fear and risk of losing a home can overwhelm even the strongest family. We hope that our Foreclosure and Short Sale FAQ will help shed some light on this often scary and confusing process. Always seek advice from a qualified real estate law expert if you have any questions. Or drop us a line and we will answer you as best as we are able.
HAFA is here! Read our HAFA program summary to see how this may possibly impact the short sale and foreclosure process.
What is a foreclosure?
Foreclosure is the legal process by which a property owner's rights are terminated, usually due to default on a home loan. The following timeline created by the Minnesota Home Ownership Center details the foreclosure process in Minnesota. Please note that this timeline can vary greatly depending on the lender involved, and that the foreclosure process being used is constantly being changed. Talk to an experienced CDPE (Certified Distressed Property Expert) real estate agent for the most current trends.
How does foreclosure effect the homeowner?
Foreclosure has a profound and adverse effect on the homeowner. It can lower credit scores by 300 points or more, make it almost impossible to find financing for another home for at least 7 years, and is a financial stigma that can follow the foreclosed individual/family around for the rest of their lives. It is the only credit item that is asked for specifically when applying for a new mortgage and can adversely effect your mortgage rates. It is the one blemish on a credit report that is almost impossible to "repair". Lenders can seek deficiency judgments against the foreclosed party (even in a deficiency free state like Minnesota). Many employers run credit checks on current and future employees; foreclosures show up in these reports and may put a potential new hire or current employee in jeopardy of job loss. Foreclosure is the single most devastating credit issue you can have in relation to future credit availability.
What is a short sale?
A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. This is achieved through negotiating with lenders, aggressively marketing the property, and pricing it strategically and effectively.
What are the consequences? What are the benefits? What is the difference?!?!
Here is a list of just some of the things to consider. Foreclosure consequences are highlighted in red, short sale consequences are highlighted in green.
Future Fannie Mae Loan - Primary Residence
A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period of 5 years.
A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed mortgage after only 2 years.
Future Fannie Mae Loan - Non Primary
An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae-backed investment mortgage for a period of 7 years.
An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.
Future Loan with any Mortgage Company
On any future application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 form that asks "Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?" This will effect future rates.
There is no similar question or declaration regarding a short sale.
Credit Score
Score may be lowered anywhere from 250 to more than 300 points. Typically will affect a credit score for over 3 years.
Only late payments on mortgage will show, and after sale, mortgage is normally reported as "paid as agreed", "paid as negotiated", or "settled". This can lower the score as little as 50 points if all other payments are being made. A short sale's effect can be as brief as 12 to 18 months.
Credit History
Foreclosure will remain as a public record permanently, and on a person's credit history for 10 years or more.
A short sale is NOT REPORTED on a credit history. There is no specific reporting item for "short sale". The loan is typically reported "paid in full, settled".
How long does it take?
Short sales are like a clock ticking down to zero that doesn't stop, so the sooner you start the process the more time you have to successfully complete it. It is recommended that you seek advice as soon as you know you are going to fall behind (be it advice from a home foreclosure counselor, an attorney, or an experienced CDPE realtor), once you get into the downward spiral of late payment penalties and interest it can be difficult to get out, in fact only 10% of homeowners who miss a payment get back on track. Once you reach the end of your redemption period, a short sale is no longer possible as the owner's rights are terminated.
Are there other options besides foreclosure and short sale?
Yes, there are many different options available, and it is important that you consider them all and seek legal advice if you have any questions. As real estate agents, our focus is to setup and complete successful short sales for our clients in distress, as we believe this to be the least damaging and most plausible solution in most cases.
What course of action is the right one?
Every situation is different and every solution is unique. If you need more information, please feel free to contact us.
