Whether you’re a buyer or a borrower/seller, a short sale, and foreclosure each present different advantages and difficulties. If you are not in the business of real estate you might not understand the difference between a short sale vs foreclosure – what’s the difference in Minneapolis St Paul. We hope to make that clean in this article. Keep in mind that every state is different and we are talking about Minnesota .
What Is A Foreclosure In Minneapolis St Paul, Minnesota ?
In simple terms… “A foreclosed home is one in which the owner is unable to make their monthly mortgage loan payments and the bank gives them a warning and then repossessed the home” (source). The home you purchase has some wordage in your contract with the lender about what happens if you can not make payments or get behind on them. At that point, the lender is able to legally take the home and ask you to leave it.
A home is typically foreclosed on when a borrower fails to make mortgage payments. The lending institution assumes ownership and possession of the property, evicting the borrower. These properties are then sold at auction or more traditional means utilizing the service of REI real estate agents. A foreclosure will damage the credit rating of a borrower, and make it very difficult to obtain a mortgage for many years.
The whole process of foreclosure can take from 9 months up to 3 years depending on the lender and the backlog of properties they are foreclosing on. When you get a month behind on your mortgage the lender typically sends out a letter stating you are delinquent on your loan. at 2 – 5 months the lender starts the process towards foreclosure and you will be asked to bring the note up to date or your home may we auctioned off at the county sheriff office called a sheriff sale. After the sale, you have 6 months called a redemption period where you can bring your loan up to date and stay in the home. But, once that 6 month period is up, you have lost all your options and the house goes to the highest bidder at the sheriff sale, most of the time its the lender.
Depending on the state that you live in… a foreclosure can work in different ways. Check out the foreclosure process information over here at the HUD Government website.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower.
The definition of a short sale is… “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source: Wikipedia)
In some cases, a short sale is an option agreed upon by borrowers and lenders. In a short sale, the home is sold for less than the outstanding balance of the mortgage. The unpaid balance (known as the deficiency) may or may not still be owed by the borrower, or if forgiven by the lender becomes like income for them on there taxes that year. The lender may send out a 1099 independent contractor tax form and you are liable to pay the tax about on the amount forgiven because of the short sale.
This option typically takes some time (6 to 24 months), as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender doesn’t agree. You truly want an experienced short sale lawyer or agent put the deal together for you.
Short Sale vs Foreclosure – Your Options
While both short sale vs foreclosure can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points. These are just estimates and actual numbers can be different depending out many variables.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.
Flash back a few years when many good people struggled with choosing between doing a short sale vs foreclosure – what was difference in Minneapolis St Paul? Many Americans were in a struggle with an economy that has yet to completely recover from the 2008 crash, folks were having a hard time making monthly mortgage payments. Today with the Corona Virus upon us, we are seeing large percentage of our Minneapolis St Paul area not able to go to work and loosing their jobs. It will be just a matter of time until those good people will be choosing between being foreclosed and initiating a short sale (or a 3rd option… selling your Minneapolis St Paul house fast )is an easy choice for a borrower having troubles paying their mortgage on time.
Sometimes, lenders are willing to work with borrowers to complete a short sale, to avoid the fees and time-consuming process of conducting a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. We offer this service where we can help guide you in the right direction if you run into issues with your lender… just reach out to us on our Contact page and we’ll discuss your situation. We are here to serve.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc. This takes more effort but may be worth your time and effort
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Work with a local real estate house buyer service like Minnesota Cash Home Buyers to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. Last resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.