Buying a Short Sale vs. a Foreclosed Property in Chicagoland

Although the real estate market is improving and, according to housing statistics gathered by the Illinois Association of Realtors, home prices have been increasing steadily since 2012, the sales of homes have not risen, mostly because of tightened credit standards and less available inventory. Nevertheless, the state remains one of the top five states in the nation with the highest foreclosure rates, as well as high rates of short sales. Buyers looking for a deal may be inclined to purchase a foreclosed home, in which the lender has retained possession of the home by way of court action as a result of the owner’s failure to pay the mortgage, or a short sale home, which is a property that is listed for sale at a price lower than what the borrower actually owes in order to avoid the foreclosure process. Before looking for a property, a buyer should first understand the benefits, disadvantages and differences in purchasing a short sale versus a foreclosed home.

Short Sale Homes

Short sale homes are properties that have yet to undergo the foreclosure process and, as such, tend to be in better condition than their foreclosed counterparts. The owner of a short sale home still occupies the property – unless it is rented out to tenants who are still living on the premises – and defects that may exist in a foreclosed home are not present because often the utilities are still connected, the landscaping has been maintained, and the home is still habitable. Just like foreclosures, the price of a short sale is lower than a non-distressed property and the lender selling the home may offer favorable closing options because avoiding the foreclosure process eliminates time, expenses and gets the liability off the bank’s books. Timing, however, is a disadvantage to purchasing a short sale, as they take much longer to close than other types of real estate transactions. That being said, buyers may avail themselves of the federal Home Affordable Foreclosure Alternatives (HAFA) program, which facilitates the lengthy process by streamlining and simplifying the short sale process. Another drawback of a short sale is that every entity that has an interest in the property must agree to the sales price – in other words, if the home has been mortgaged two or three times, all lenders must agree on the terms of the transaction as they have the ability to block the sale.

Foreclosed Homes

According to an article in the Chicago Tribune, approximately 12,671 Illinois homes received a foreclosure filing in the spring of this year. Benefits of purchasing a foreclosed home include a lower purchase price and less closing costs than when buying a non-distressed home. On average foreclosed homes sell for 30 percent less than non-distressed, move-in ready homes. In a foreclosure sale buyers, can often negotiate closing costs and, depending on the financing terms, the home can be rented out or lived in by the property owner. Also, unlike short sales, the time frame to close a foreclosed home can be fairly quick as banks are eager to take the liability off of their books. Disadvantages of buying a foreclosed property include difficulty finding one in an ideal neighborhood as well as the investment and time needed to repair the home. Foreclosed homes are often located in less desirable neighborhoods that are full of abandoned homes and, as such, property values will be low and likely not rise in the immediate future.  Although rare, wealthier neighborhoods may have a handful of foreclosed homes up for sale; if this is the case, buyers must be prepared to outbid any other interested purchasers. Additionally, foreclosed homes are often damaged and may have deficiencies including moldy walls, damaged or missing appliances, destroyed flooring and plumbing or electrical defects, to name a few.  Assistance is available, however, and some buyers may qualify for federal loans to repair a distressed home under the FHA 203k program.

Contact a Chicagoland Real Estate Attorney

The factors to consider when deciding whether or not to purchase a distressed property can be complicated. You don’t have to navigate this alone. Contact an Illinois real estate attorney today if you are considering purchasing or selling a property. The Law Offices of Gilbert C. Schumm has more than 30 years of experience with real estate transactions of all kinds and serves residents in the communities of Mt. Prospect, Schaumburg, Arlington Heights, Rolling Meadows and Roselle. Call (847) 559-9109 today to schedule your initial consultation.

The Essential Role of an Attorney in a Chicago Area Real Estate Transaction

Whether buying or selling property in the Mt. Prospect, Hanover Park or Arlington Heights area, a real estate attorney is essential to ensure your rights and property interests are protected before, during and after such a complex transaction. Although opinions may differ as to whether or not an attorney is necessary during this process, one thing is certain: the cost of professional legal fees upfront will pale in comparison to legal fees incurred during litigation as the result of a breach. Because there are several legal considerations to consider in a real estate transaction, hiring an experienced Chicago real estate attorney is key to protecting your investment.

Review of Purchase and Sale Contract

A real estate attorney will review the purchase and sale contract - preferably before it is signed - to ensure the rights, obligations and remedies in the contract favor the client. Negotiating the specific terms of the contract to ensure you are protected during the entire process is just one of the legal services provided. An attorney can change legal language in a purchase contract to protect the interest of a buyer, such as requiring the purchase and sale contingent on the appraisal, financing or a satisfactory home inspection. A contingency is a condition precedent to finalizing the sale; if the matter specified in the contingency does not occur or is not resolved to the buyer’s satisfaction, the buyer has the right to terminate the sale and have the earnest money deposit returned.

Title, Financing and Legacy Concerns

Unlike other participants in a purchase and sale of a home, such as realtors, lenders, appraisers, inspectors, and title insurance company representatives, your lawyer owes an absolute duty of loyalty to you in a real estate transaction. A qualified real estate attorney can review title documents to ensure clear and marketable title to the property is conveyed at closing, explain and evaluate financing options available to the buyer, advise the seller regarding tax implications as a result of selling, and ensure all title documents are correctly prepared so that the conveyance is effective and valid. A buyer’s attorney will review title to determine if there is any interference with the client’s future property rights, such as easements, restrictions or encroachments. Furthermore, if the buyer is a couple, a real estate attorney can give advice as to the legal consequences of holding title as joint tenants or tenants by the entirety.

Representation at Closing

At closing, the attorney can assist clients by guiding them through the process of signing the large number of documents needed to convey the property, as well as ensuring all documents were satisfactorily prepared. The seller’s attorney will review the proposed settlement statement, which details all of the fees and charges the buyer and seller will incur, which is prepared by the buyer’s lawyer. This “second look” at the numbers ensures the math was done correctly because the attorney will cross check all debits and credits prior to approval. The seller’s attorney will also obtain the payoff amount from the seller’s lender and will prepare a certificate of satisfaction for the buyer, showing the loan has been paid in full. Before closing, the buyer’s attorney will communicate with the client’s lender, the realtors and the seller’s attorney to ensure all conditions have been met in order to close successfully.

The purchase or sale of a home can be one of the largest transactions during one’s lifetime. Contact an Illinois real estate attorney today if you are considering purchasing or selling a property. A small investment in legal fees upfront will save you thousands of dollars in the long run by avoiding legal consequences from mistakes or omissions during the sale. The Law Offices of Gilbert C. Schumm has over three decades of experience and serves the communities of Mt. Prospect, Hanover Park, Arlington Heights, Rolling Meadows and Roselle, among others.

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.