Will I Get A Deficiency Judgment?
Minnesota / Twin Cities Deficiency Judgment:
NOTE: PLEASE OBTAIN YOUR OWN INDEPENDENT ADVISE FROM EITHER YOUR ATTORNEY OR OUR ACCOUNTANT.
A deficiency judgment is a judgment lien against a debtor, defendant or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or non-recourse loan. Most residential loans in the state of Minnesota are recourse loans.
No deficiency judgment can be obtained against a mortgagor in Minnesota if the redemption period is six months (which it almost always is), and foreclosure was by advertisement (which it also almost always is). If the redemption period is something other than six months, a deficiency judgment could be sought after the debtor, but it is limited to fair market value which must be determined through a Jury Trial.
What does this mean? It means to pursue a short sale if at all possible. You will avoid a foreclosure and most likely avoid a deficiency judgment.
Contact the Twin Cities Short Sale Realtor to discuss your personal situation.
Mortgage Debt Forgiveness Act
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
Although you'll want to double check with your accountant, see http://www.irs.gov/individuals/article/0,,id=179414,00.html for more information or contact us today to learn more.
What Is A BPO?
BPO - The Broker's Price Opinion:
Often times when I meet with potential clients who are interested in pursuing a short sale, a question pops up during my explanation of processes when I talk about the BPO - to explain what a BPO is.
The BPO is the Broker's Price Opinion. It is similar to an appraisal but it is performed by another Real Estate Agent. Hence, it is an opinion of the value of the home at the current time. There are many requirements for the BPO such as similar area, similar age, similar style, similar characteristics (bedrooms/bathrooms/size/etc). Although the BPO is not as in depth as an appraisal, it is meant to give the lender an unbiased opinion as to the property value.
Once the BPO is complete, the lender will be able to continue their due diligence to see if the offer that was presented for consideration of short sale is a reasonable offer. In my opinion, this is the number that the lender will base all it's numbers off of when considering the short sale.
To learn more about the short sale process, please contact us today.
What Is The Redemption Period?
Redemption Period & A Short Sale:
In Minnesota, the term "redemption period" is the period that the owner of real estate has to redeem the property after a Sheriff's sale. The time is typically 6 month's from the date of the Sheriff's Sale. The redemption period can be shortened to 5 weeks if a court order is obtained and the home is either abandoned or the homeowner does not live there. The redemption period is 12 months if the any of the following apply:
- The amount due to the lender is less than 2/3 of the original balance.
- If the property is greater than 10 acres in size with additional limitations.
- If the property is greater than 40 acres in size.
What happens During the redemption period?
- The homeowner may continue to live in the home until the end of the redemption period.
- If the homeowner would like to keep the property, they must pay off the entire balance of the mortgage plus any fees.
- The owner can refinance the home if they can find a lender willing to do so.
- The owner can work with the lender for a forbearance, mortgage modification, repayment plan if the lender allows it.
- The homeowner can sell the home. If there is equity in the home, the homeowner may keep any equity that is left after selling fees. If there is no equity, the owner may pursue a short sale.
- After the Sheriff's Sale (during the redemption period), additional interest and fees accrue which will increase the payoff amount.
- The owner is still responsible for all fees associated with the home, including insurance and utilities.
- If the owner files for bankruptcy during the redemption period, the period may be extended by an additional 60 days. A court order must be obtained to get additional time during the redemption period.
What happens After the redemption period?
- Whoever was the winning bidder at the sheriff's sale and holds the certificate is the rightful owner of the property.
- The owner must vacate the property. If they do not, a court order and eviction will take place. This can go on public record and may further damage the credit of the occupant.
- If the property is offered for sale after the redemption period has expired, any equity left in the home goes to the new owner.
- If there are additional mortgages or liens on the property, they will become unsecured and the owner will still be responsible for the balances owed (unless bankruptcy is filed and the debts are discharged).
Does A Bankruptcy Ruin A Short Sale?
Bankruptcy and a Short Sale:
Every so often I run into a short sale where the seller recently filed bankruptcy. In some instances, the lender is unwilling to consider a short sale after a bankruptcy is filed and/or a discharge is obtained.
Although I am not 100% sure, I believe the reason for this is because negotiating a short sale is considered a collection activity on a debt, which is forbidden during bankruptcy.
This definitely brings up an interesting point that if the above statement is true, why do some lenders still consider short sales and others do not. To be honest, I'm not exactly sure. I've had recent experiences where an owner has a first and second mortgage with the same lender and the first mortgage would approve the sale and the second would not because of the bankruptcy. You would think that the internal policies would be the same within the same company even though they have different departments.
In any event, the bankruptcy may ruin the chances of a short sale, but it may not. Until we make an effort to contact the lender and ask for a consideration of short sale, we won't know what they are willing....or unwilling to do.
Please contact us if you would like to pursue a short sale on your home, before, during or after your bankruptcy process.
Lastly, please keep in mind that you should consult with your attorney regarding the effects of a short sale before, during or after your bankruptcy.
What Is A Short Sale?
Real Estate Short Sale Definition:
A real estate short sale occurs when the proceeds of the sale fall short of the balance of what is owed on the home. Many things can contribute to this but most often declining market values or the fact that the home is over-mortgaged.
A Real Estate Agent like the Twin Cities Short Sale Realtor will work with the lender to get them to agree to the short sale. Often times the lender will realize that accepting this offer, even though they are losing money, is financially more sound than trying to force the owner to pay or foreclosing on the property.
Unfortunately, a short sale is not short in time. The time frame required to complete a short sale can be as little as a couple weeks or as much as several months. Buyers will need to be patient during this process but can reap the rewards on a good deal.
To learn more about short sales and what this means for you, please contact us.
What Is A Sheriff’s Sale?
All about the Sheriff's Sale:
In Minnesota, when a mortgagor (the person paying the mortgage) falls into default, the lender, or mortgagee may commence the foreclosure process. Part of the foreclosure process is to hold a sheriff's sale, or public auction on the home.
This auction is typically held at the sheriff's office and anyone may bid on the home in question. The winner of the auction is said to have equitable interest in the property. Minnesota law dictates that an owner who is residing in the home can have up to 6 months to redeem the property, or bring the home out of foreclosure. This is called the redemption period. If the owner is not living in the home, the auction winner may obtain a court order to reduce the redemption period from 6 months down to 5 weeks. With a couple of minor exceptions, once the redemption period expires, the winning bidder from the sheriff's sale is the new owner of the home.
If you owe more on the home than what it's worth, you may continue to pursue a short sale with the lender(s) during this redemption period while the home is in foreclosure. Most lenders are still willing to consider a short sale during this time.
At the Twin Cities Short Sale Realtor, we're experts at working short sales during the redemption period. Please contact us today if you would like to request a short sale from your lender(s) and we'll get working right away!
Can I Do A Short Sale With More Than One Mortgage?
Multiple Mortgages and Short Sales:
Often times people have more than one mortgage and need to apply for a short sale. This is OK and it's actually a good idea to consider a short sale if you have more than one mortgage. Here's the reasoning behind my statement.
In Minnesota, a lender can either foreclose on your home, or they can pursue a deficiency judgment against you for the balance owed, but not both. In most circumstances, if your home is headed to foreclosure, it's the first mortgage company that purchases the rights a the sheriff's sale. They've opted to start the foreclosure process on your home, so the first mortgage company has given up it's right to pursue a deficiency judgment against you. However, you have a second (and maybe a third) mortgage on your home.
Since two mortgage companies cannot pursue the home in foreclosure action, the only thing that is left as an option to the second mortgage company is to get a judgment for the balance owed. Of course, avoiding this situation is important because if a judgment is obtained, they can legally use your assets to pay themselves (Bank accounts, cars, etc). The purpose of the short sale does have it advantages. Getting your lender to agree that any amount received at the closing to satisfy what you owe them can certainly become a powerful "must have" when considering your options to apply for a short sale.
We're experts Realtors at the Twin Cities Short Sale Realtor in getting your mortgage companies to agree that what they've received as part of your home selling, is a good deal. Contact us today to learn more!
Short Sale Hardship Examples
Samples of Short Sale Hardships:
Often times I get asked by a seller who is considering a short sale if they have a "good reason" or a hardship that their lender may accept. There are many considerations that your lender will take into account when they are reviewing your request for a short sale. Usually a "just because" reason won't cut it but below are some reasons that may elude to a situation where you should consider a short sale.
- Loss of job
- Reduction in income
- Death of a family member
- Extensive medical bills
- Job transfer
- Illness or injury
- Adjustment of your mortgage interest rate
- Reduction in the number of hours worked
- Divorce or separation
- Marriage or family additions
- Call of duty in the Military
If you have any of these hardships or would like to discuss your current situation, please contact us at the Twin Cities Short Sale Realtor.
Does A Short Sale Stop The Foreclosure Process?
Will a Short Sale stop my Foreclosure?
Many homeowners would like to know if initiating a short sale with their lender will stop the foreclosure process. The answer is no, but they may postpone it. Most lenders have different departments that have different tasks assigned to them. One task would be proceeding with foreclosure, another task could be reviewing and approving short sales. Typically, these departments are separate from one another and oddly enough, they don't talk to one another.
As strange as that sounds, the lenders are not business machines that are good at efficiency. I think that is well documented considering how long a "short sale" actually takes. Remember, lenders are in the business to make money on interest. As large as the lenders really are, they are mostly understaffed and overworked in the short sale department.
However, if your lender thinks that the offer on your home is within an acceptable value to them, your lender may postpone the foreclosure process. We see this happen prior to the sheriff's sale, but after the short sale package has been received. By postponing the foreclosure process, they have postponed the sheriff's sale. In past experiences, if the short sale cannot be approved or the terms are unacceptable to the buyer or seller, they will initiate that action again.
Remember, the foreclosure process is just a process here in Minnesota. You have time to successfully submit a short sale for review and approval from your lender. See the article regarding Short Sales Vs. Foreclosure for some positives and negatives to each.
So what can you do if your home is headed down the path of foreclosure and you want to explore the possibilities of considering a short sale? It's simple really, contact us at the Twin Cities Short Sale Realtor and we'll work endlessly to get your sale approved.