MN Short Sales, Foreclosures and REO’s

October 12, 2011


Minneapolis and St Louis Park home buyers seem to be talking about foreclosures and shortsales in almost every conversation when talking about buying a new house or home for sale. The word foreclosure seems like it comes up in just about every other word and if you are not in the real estate business you might not understand the difference between a foreclosure and a short sale.  Very few Minneapolis home owners are immune to the downturn that we have seen in the real estate market since 2006.  Just about everyone knows someone personally or has heard of someone in their neighborhood who is either in the process of losing or has lost their home to foreclosure.

There are many reasons that a home owner may go into foreclosure these days but the reason a home gets foreclosed on is because the homeowner has decided or is unable to make his or her payments to who holds their mortgage.  In most cases, if you can continue to make your house payments on time it is best to stay in your home and ride out this storm until house prices and your equity build back up.  If you are less fortunate and may have missed a mortgage payment there are other options besides being foreclosed on.  One of these options is to sell your house short.

Short sales are becoming more and more a viable option to sell your house if you are not able to make your MN mortgage payments.  A MN short sale is where the borrower or home owner of a home needs to sell the house for less than he or she owns on his first mortgage.  For example, say Tom owes $200,000 on his home an can no longer make his mortgage payments and Toms house is only worth $180,000 in today’s market so in order to sell his house he would need to come up with $20,000 at the closing.  In a short sale, Tom would get approval from the bank or his lender to sell the house short of what is still owed.  In this situation, even though Tom still owed the bank $200,000  he would be able to sell his house short at the price of $180,000 and be not owe any more.  Lenders have become much more receptive to this idea as they are not in the business of selling houses themselves and would otherwise have to foreclose on the property and take ownership.

The homeowner has a lot to gain from selling their house short rather than letting it go into foreclosure.  In MN, if your house is foreclosed on your credit will show this for many years to come.  Although the party selling the house short will receive no proceeds from the sale, it will also have a lesser impact on their credit than the foreclosure would.  Homeowners should be able to restore their credit much quicker than if they were to go into foreclosure.

Whether in the market to buy or sell a home, short sales can offer some great opportunities on both sides.  Since all the parties are motivated to sell the home quickly in these situations.  While the short sale process can take more time than a traditional home sale, it offers some great benefits and yet resembles a traditional retail sale more than an REO would.  Contact Jan Worthen if you are looking to sell or buy a REO or short sale.