Facing Foreclosure in the Schaumburg Area? A Short Sale May Provide Alternative Relief

Acquiring your Chicago dream home has finally happened. But so have life’s surprises. Now you are behind on your payments; you may even be underwater and catching up, but even selling the home to pay off your debt seems impossible. You are not alone. According to Market Watch, Illinois ranks in the top five states in the country with the highest foreclosure rates. But you may have another, less painful, option: a short sale.

Foreclosure versus Short Sale

A foreclosure is a legal proceeding initiated by a mortgage lender when a borrower defaults, or gets behind, on payments. It is the legal right of the lender to gain ownership of the property or sell it and use the proceeds to pay off the defaulted mortgage. A short sale is when a homeowner owes more money on the home than what it will likely sell for in the real estate market, and the lender agrees to take less than what is owed to them to avoid the foreclosure process. Where previously the requirements to qualify for a short sale were more stringent - including owing more on the mortgage than the home was worth and proving financial hardship such as job loss, divorce or decreased wages of the primary provider of the mortgage payments - as of November, 2012, homeowners whose loans are serviced by Fannie or Freddie Mac may be eligible for a short sale if they are not behind on payments and are experiencing financial hardship. Similarly, the federal government passed the Home Affordable Foreclosure Alternatives (HAFA) program, streamlining the short sale process, which used to take months and, unfortunately, sometimes still ended in foreclosure.

Two Short Sale Destroyers

Unfortunately, not all situations will allow for a short sale of the home. In particular, there are two circumstances in which short sale approval is extremely difficult and will most likely be unsuccessful. First, if your loan is not in default a lender will likely not accept a short sale offer or request. In other words, you need to fall behind on your payments or receive a notice of default before your lender will even consider a short sale. Second, if a person seeking a short sale has filed for bankruptcy, a mortgage lender will likely not consider a short sale of the property. The reason for this is because negotiating a short sale is considered a collection activity, which is prohibited by law in bankruptcies.

What’s in It for the Lender?

Forgiving a shortfall on a mortgage seems counterintuitive, however, as a consequence of the real estate housing crash banks still have homes on their books affecting their profits. Avoiding foreclosure is beneficial for the lender as well as the homeowner because the foreclosure process is expensive, time-consuming, and complicated. Approving a short sale will keep the property from becoming the bank’s liability and keep the parties out of court.

Obtaining a short sale approval from your lender, however, is not guaranteed. You will need to provide specific documentation to prove your hardship including: 1) an authorization letter giving the lender permission to discuss the short sale with a buyer or agent; 2) a hardship letter, evidencing your dire financial situation and your inability to bring mortgage payments up to date; 3) an assessment of the property in question, in the form of an appraisal or a broker’s opinion; 4) a purchase offer or contract, showing the lender you have a ready buyer; and 5) a settlement statement, often prepared by a real estate lawyer, detailing what the lender’s net proceeds will be. Experienced legal, real estate and tax professionals should work together to help your case and provide assistance through every step of the short sale process.

Sometimes life’s circumstances happen, causing late or missed mortgage payments on a home. If you are at risk of losing your home you may be eligible for a short sale, which will avoid the foreclosure process. The short sale process is complicated and an experienced attorney can help you every step of the way. The Law Offices of Gilbert C. Schumm has over 35 years of experience in helping homeowners find relief and services the Schaumburg, Arlington Heights, Palatine and Des Plaines areas, among others. Contact an Illinois foreclosure defense attorney today for a free initial consultation.