Short Sale AFTER Sheriff Sale

[Trapped No More]

I recently talked to realtor friend of mine and he said in Minnesota, where there is up to a six-month redemption period following a sheriff sale, you can still submit a short sale to your lender. He said he's done many successfully and, in his experience, the banks are becoming easier to work with on them. He said that once the sheriff sale occurs, the bank can no longer seek a deficiency judgement and therefore there is no risk to trying a short sale if you have significant money in the bank and a good paying job. The obvious advantage is, if it's accepted, it's recorded in your credit report as a short sale versus a foreclosure, so you can buy another home sooner and don't have to check the box that asks if you've ever been foreclosed on.

Does anyone know if this is legitimate and if there are any downsides or hidden risks to it? It seems like once the sheriff sale has occurred there's no risk to at least trying this alternative, but perhaps I'm missing something.

Thanks in advance for any information or clarification that can be provided.

[Evan Bedard]

He said that once the sheriff sale occurs, the bank can no longer seek a deficiency judgement and therefore there is no risk to trying a short sale if you have significant money in the bank and a good paying job.

This does not make any sense.. Lenders cannot pursue judgements until after the property has been foreclosed on, not before..

Is there a right of redemption in Minnesota?

Minnesota has astatutory right of redemption, which would allow a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs within six (6) months after the sale. Theredemption period is twelve (12) months if the amount due as of the date of the filing of the notice of foreclosure sale is less than 2/3 of the original principal amount of the loan and the property exceeds 10 acres or the property exceeds 40 acres.

Are deficiency judgments permitted in Minnesota?

Yes. Adeficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage secures. Deficiency judgments are limited to thefair market value of the property less the unpaid balance of the loan that was foreclosed.

[Trapped No More]

Thanks for the response. For the sake of clarity, in Minnesota a lender has two foreclosure options. The first is called Foreclosure by Action and is in essence a judicial foreclosure. It is expensive for the lender because it has to go through the courts, and is therefore rare, but does allow them the pursue a deficiency. The second option is called Foreclosure by Advertisement (requires notice in local paper and Sheriff's Sale). It is the foreclosure process used in almost all circumstances in the state and while less expensive and more convenient for the lender, it does not allow them to pursue a deficiency judgement.

In a Foreclosure by Advertisement, after the sheriff sale takes place, there is a six month redemption period. At the end of the six months, the bank officially takes ownership of the property.

My question is whether or not others have heard of doing a short sale after the sheriff sale and before the redemption period is over? And is it true that once a sheriff sale has occurred the bank can no longer change course and pursue a Foreclosure by Action, which would entitle them to a deficiency judgement. I've asked a couple of RE attorneys this question, but no one seems to know the answer. It's important for me to know, because I would not want to expose my financials to the bank if they have the option of pursuing a deficiency. On the other hand, if the sheriff sale essentially locks them in and they can no longer pursue a Foreclosure by Action, there is no risk to me giving them my financial information.

[RonPaulMN]

Your understanding is correct that you can still do a short after the sherriffs sale and at that point your deficiency is 100% gone. I talked with a law firm from Maple Grove. MZlaw.us The lender may still require cash at close or a promissary note but that can be negotiated.