Illinois Short Sale Information
What is a Short Sale
Generally speaking, a short sale occurs when a property sells for less than the full amount owed on it. When this happens, the property is said to have been “sold short”.
The short sale process is often a great option for homeowners that need to sell a home that has fallen in value to the point that it’s worth less than the mortgage. This is a real solution to avoid foreclosure and all the associated problems. Each short sale is different with several possible outcomes – I work hard to get my clients:
- Full resolution of all outstanding mortgages
- A release of deficiency – owe no debts to your lender after the fact!
- All fees paid by your lender – no out of pocket to you
- Up to $20,000 cash back at closing depending on terms and qualifications
If you feel a short sale is right for you, contact me to schedule a no-hassle phone interview to talk about the process.
Programs Available For Short Sales
1. HAFA – this is perhaps one of the best programs available for homeowners in financial difficulty. The Home Affordable Foreclosure Alternatives program was created by the Federal Government to allow eligible homeowners to transition to more affordable housing with many important benefits. These include a full release of deficiency (your outstanding loan balance), less impact to your credit rating and more of a chance to quickly recover and finally, a $3,000 cash payment at closing for relocation assistance. Because of these advantages, I recommend that all of my clients apply for the HAFA program. For more details about this program right from the government, visit the HAFA website.
2. Lender Fast Track Programs – there are several programs available through specific lenders that can either fast track your short sale or provide you with an additional monetary payment above HAFA relocation assistance or both. Many of these programs are only available for specific loans through specific lenders so it’s important that you contact me with your home and loan details so I can see if you may be eligible. Some of the more well-known fast track and payout programs include:
- Bank of America Fast Track through Equator
- Wells Fargo Fast Track Program for Wachovia loans (these are also eligible for up to $20,000 in additional relocation)
- Chase Fast Track Program for Washington Mutual Loans – particularly option ARM (may be eligible for up to $30,000 in cash at closing)
- Wells Fargo Fast Track Program for World Savings loans – particularly Pick-a-payment and option ARM (may be eligible for up to $30,000 in cash at closing)
These programs are usually offered in addition to the HAFA program. There are more programs available than the ones listed above and new programs are available each year. You may not be eligible for an extra cash payment from your lender but as your agent, I will explore all options to try and get you the most benefits available to you – cash or otherwise. Submit your loan details to see what you may be eligible for.
Short Sale Basics
For many Illinois homeowners, the prospect of losing a home to foreclosure is a scary and emotional process. What doesn’t help is the large amount of sometimes conflicting advice and information out there. Studies have estimated that between 2006 and 2013 – just 8 years – nearly 20% of homeowners throughout the entire country will have faced foreclosure – that’s 1 in 5 homes. The entire short sale process is, in essence, simple but often includes many complications. That’s why nearly each and every short sale I have assisted with over the last 5 years has been unique in at least some way. To help explain what a short sale generally is, I have created this page. It should be noted that since every short sale is unique, if you are considering this type of sale, you should contact me directly so I can give you help more specific to your individual situation.
A short sale can only happen with the permission of the mortgage holder. For this, the seller must demonstrate four things:
1. That a hardship exists
2. That the current value of the home is less than the amount owed plus closing costs.
3. That a buyer exists for the home that isn’t related in any way to the seller.
4. That there is no better alternative.
If these four conditions exist, there is a good possibility a short sale will be successful. However, it’s important to realize that a short sale may not be the best option for everyone. A short sale results in some negative consequences and shouldn’t be undertaken without all the facts as well as careful consultation with a short sale expert.
I also want to make it perfectly clear that I am not a licensed attorney and the following information should not be considered legal advice in any way. I am going to present several possible definitions and parts of the short sale process. This should in no way take the place of legal representation. I can recommend several fine attorneys to you should you with to explore your options regarding short sales.
First, it’s important to discuss exactly what a short sale is. A short sale is, in the most basic way, a sale that closes with proceeds that are “short” of the amount to fully pay off all debtors. Or, put simpler way, a piece of property that sells for less than the seller owes on it.
There are generally four main parts to this process:
1. Pre-listing – this begins with the decision to go ahead with a short sale. During this phase, the Realtor works directly with the sellers to price the property according to current market conditions. The real estate agent will also have the sellers sign a traditional listing agreement to put the home on the market. Usually during this step, the Realtor will also work with the sellers to gather the various pieces of information (the “packet” or “short sale packet”) needed to begin short sale negotiations with the lender(s).
2. Listing and Sale – during this time the property is marketed in the traditional manner with a couple exceptions. Generally some type of disclosure will be made that the property is a short sale and subject to lender approval. Time is also often a factor in the sale, so often, the property is priced agressively and frequent price reductions may be suggested. At the conclusion of this phase, the home attracts a buyer and both buyer and seller sign the traditional sales contracts with the addition of several addendums regarding the short sale.
3. Short Sale Negotiation – after the buyer and seller have entered into a sales contract, someone will contact the lender(s) on the seller’s behalf and begin the negotiation process. In some cases, the real estate agent contacts the lender(s) directly. However, I highly suggest my clients work with an attorney who specializes in short sale negotiation during this phase. This is by far the longest stage of the process and involves lots of follow-up as well as potentially several appraisals. At the conclusion of this phase, either the lender(s) approve the short sale, approve the short sale with conditions, counter the buyer’s offer or reject the short sale. If the sale is rejected, the process must be repeated, sometimes from the very beginning.
4. Closing – once the lender(s) have approved the short sale, a closing date is set and the sale continues just like any other real estate transaction.
Additional Questions and Answers Regarding Short Sales
Q: What is the advantage to doing a short sale?
A: According to the Law Office of Christine Garner, one of the attornies I recommend to my clients, there are several reasons. Typically a short sale will show up on your credit report as “account settled for less than full balance” – this is far better than a full foreclosure on your credit record and will allow you to rebuilt good credit faster. Clients have reported being able to purchase a home just 1.5 years after a short sale under ideal circumstances. On the other hand, a foreclosure usually affects your credit for far longer. It can realistically be 5-7 years before you can purchase a home after a foreclosure. Finally, if there is a deficiency judgement, it is usually far less than if the property goes through foreclosure as it will incur fewer legal fees and foreclosures typically sell for far less than short sales.
Q: What is a Release of Personal Liability and a Deficiency Judgement?
A: This is important to understand. When a property goes through foreclosure, at the end of the process, the home is sold and the proceeds are used to satisfy any mortgages on the property. This amount is usually less than the full amount owed to the bank. The difference between what is owed and what the property sold for is your “deficiency”. Unfortunately, the bank can still file for a deficiency judgement in an attempt to collect that debt. The same process can still happen in a short sale and that is important to realize. Just because the bank may allow you to sell the home for less than you owe doesn’t mean they have to forgive that deficiency. Occasionally, the bank will release the sellers from liability. Most often, the bank will choose to write off this deficiency for the tax break associated with this loss. If neither of these happen, the bank may choose to file for a deficiency judgement. You likely won’t know which of these is going to happen up front, however, these results are the same whether
you do a short sale or a foreclosure.
Q: What does a short sale cost me?
A: Usually a short sale costs nothing out-of-pocket to the sellers. The real esate agent’s commission, attorney fees, title costs, transfer stamps and often back taxes owed are usually paid for out of the proceeds of the sale (or in other words, since there are no proceeds, by the lender). If the property doesn’t sell, you don’t pay a thing. I charge no upfront fees and none of the people I recommend to my clients charge upfront fees. Occasionally, in the case of a second mortgage, the lender will require a certain amount of money in order to approve the sale. If this happens, the most typical outcome is to request the buyer pay this additional cost. In many cases, since the buyer is usually getting a good price on the home, they may choose to do this. If they decline, if you have any capability to pay this extra fee, it may outweigh the prospect of losing the property to foreclosure. If neither option is possible, we may put the property back on the market and attempt to attract a new buyer that would be
willing to pay the extra out of pocket expense. The important thing to realize that if any extra fee is required, you are never locked into a situation where you will be forced to
Q: Will I owe any taxes on the forgiven debt if my short sale is successful?
A: According to the Federal Mortgage Debt Relief Act which became effective in 2007 and was later extended, if the home is your primary residence, you will usually not have to report this forgiven debt as income and will incur no taxes. This act covers sales up until December of 2012. Interestingly, there have been several articles by real estate professionals that have gotten this information wrong. However, it’s important that you discuss this with an accountant or tax professional in order to verify if you qualify for this exemption.
Q: Once I have a contract on my home, how long will the process take?
A: This question is really impossible to answer but is the most common question asked by both buyers and sellers. The reason is, the amount of time it takes is completely dependent on circumstances beyond our control – namely, how quickly your lender wants to work on it. I have gotten an approval in as short as two weeks but in a couple of cases, we didn’t get an approval after 6 months. I can say that, on average, the approval process takes 3-4 months but plan on the long haul.
Q: I owe much more on my home than you are pricing it – why would the lender even consider letting me sell it for that much less than I bought it?
A: In many cases, the amount you owe has nothing to do with whether or not your lender will approve it. The biggest factor is the current fair market value of the property. During the approval phase, your lender will often do several appraisals to determine the value of the home. If it lines up with our sales price, there is a good chance it will be approved.
Q: I have already been served papers for a foreclosure, is it too late to do a short sale?
A: No. A short sale can be started as late as a couple months prior to the actual sheriff’s sale, however, the earlier in the process we start your short sale, the better the chance that it’s going to work. Usually a foreclosure can be stopped as late as a month before the sheriff’s sale but we must have a contract in place and your entire short sale packet completed. The important thing to remember is: don’t wait! Contact me now so we can take a look at your situation and I can put you in touch with a good attorney that can assist you legally.