Posts Tagged ‘a short sale real estate’

Short Sale Homes: Definition of a Short Sale and How to

Monday, April 21st, 2008

MN-Minnesota-short-sale

Minnesota

A More updated version of short sale homes is now available here What is the mn Short Sale Process

This post is going to just be a brief overview of of the short sale process, and at a later time I may post a more detailed short sale posting.

Short sales in general are a more complex transaction, and usually takes an experienced agent to do the job right. In the current market some sellers who are no payments behind and can’t afford the house payment or adjustment in payment may be eligible for a short sale. In recent years you would be 60-90 days behind before a lender would even negotiate a short sale, but in the current market you can be just a little bit behind with a bleak future on the horizon. The bank sees what’s inevitable and is willing to work with you. Here is what happens most of the time. A seller wants to do it themselves, so they call their bank and it’s usually some customer service rep, and they ask them if they do short sales. The customer service rep may not even know what they are talking about. Many times seller’s beat themselves up getting no answers. What seller’s don’t know is there is a department called “loss mitigation” where the loss mitigators are hired by the banks to specifically negotiate short sales and approve them.

Now if a seller gets to this point, they are welcome to do it themselves, as a general rule seller’s are not in the right state of mind to want to do this. If you let a 3rd party negotiate with the loss mitigator for you they will do the work and the bank will pay them their commissions, to the agent that is. The banks generally pay 5% or less to agents. Banks also don’t like any junior liens (2nd’s , 3rd’s, mechanics liens, etc) to make any real money. Count on $1000 or less, that’s if the bank is going to take less than what’s owing. Banks typically lose $40,000 -$60,000 on a full foreclosure, so it’s in their best interest to just make it go away.

There are other issues as not taking back “non performing” assets and notes. Info which is also not readily available is that a bank can lose it’s “charter” status if it takes over a certain % of non performing loans. Also most experts agree that a bank will have to hold up to 8:1 ratio of reserves for every non performing asset the bank takes back. That means for every $200,000 house (non performing loan) the bank takes back 200,00 x 8= $1.6million has to be held in reserves. There may be banks that are able to hold less than this, I have heard some say 7 x, other say 10 x. More people than not have said 8x. These are some ideas of why the bank doesn’t want your foreclosed home.

Some banks will not negotiate a short sale after the sheriff sale. If you need to have someone do a short sale on your property, I’d recommend 30-60+ days to get it negotiated after you hand in your paperwork, and then allow 3-6 months at least for marketing with current market conditions. Time is of the essence. The kind of paperwork you will need will be similar to what you need to get a loan. w-2’s, bank statements, etc. The bank wants to just see you don’t have thousands of dollars hidden away. After all, the bank is taking a big loss, so they don’t want to see the seller make a penny. As far as the deficiency judgment questions, that can be negotiated away during the short sale. As a general rule in Minnesota, the foreclosing lien position (in most cases the 1st mortage) has waived their right to a deficiency by initiating foreclosure. Please consult your attorney and CPA to verify this. Their could also be a tax hit.

Some have heard about the new legislation that would waive taxes for those doing a short sale, please let me warn you, that’s for owner occupied only and many many people that doesn’t apply to. I’d like to have you look directly at IRS website and other legislation and talk to your CPA to get the real story. Please verify an update of info on this at www.OverFinanced.com

Eventually the lender will need to verify a HUD-1 settlement statement to see what every other lender and agent is making to approve the HUD from the seller’s side. The agent will list the house on the MLS mostly likely and get an offer from another buyer’s agent or buyer and write up a purchase agreement, and get it approved by the lender. Then they will try to close the loan and get financing like usual, the only difference is instead of seller approval, it’s subject to lender approval.

Let me just tell you that short sales take a lot of effort, and I don’t recommend it for the beginner. Most seller’s just want peace of mind and want to just be done with the property. Let a short sale expert and/or agent help you out.

If you have a house you owe too much on, are behind in payments, or in foreclosure, please email me at ron@minnesotainvestors.com and I will put you in touch with an agent and short sale negotiator to help you with your house. Remember they get paid by the bank, the idea is for this to be easy for you.

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