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.

Foreclosure Defense - Selling the Property

The previous article on foreclosure defense discussed some of the foreclosure defenses that may be available where an Illinois homeowner wants to fight the foreclosure and retain the property. This article follows up by discussing options available to a homeowner who wants an opportunity to sell the property instead of having it go through foreclosure.

Schaumburg Foreclosure Defense

If The Homeowner Wants To Sell The Property

Defend Against the Foreclosure Action - While this at first may not seem to make sense, it is important to defend against a foreclosure even if the homeowner wants to sell the property. Defending against the foreclosure is important for two reasons. First, during the litigation period, the homeowner is not required to make normal monthly mortgage payments. Litigating the foreclosure buys the homeowner valuable time to make the next move. Additionally, defending against the foreclosure using viable legal defenses may result in the court ruling that the mortgage was improperly obtained and should be rescinded.

A ruling that the mortgage must be rescinded is very helpful to the homeowner. Rescission is an important legal concept. It is a remedy based on the concept of equity or fairness. If a court rescinds a mortgage because of improper lender behavior, it cancels the terms of the mortgage being foreclosed upon and results in an “unwinding” of the mortgage transaction. Payments that have been made by the borrower under this rescinded mortgage are then applied to the mortgage principal, instead of toward principal and interest, thus increasing the homeowner’s equity in the property. The homeowner gets the benefit from this equity when the property is sold.

Short Sale - A short sale is when a lender agrees to accept less than the total amount owed on a mortgage to avoid having to go through the expense and hassle of foreclosing on a property. Traditionally, to qualify for a short sale, the homeowner needed to owe more on the mortgage than the home was worth and the homeowner needed to prove the existence of true financial hardship (such as decreased wages, job loss, divorce, death of a primary contributor to mortgage payments, or a medical condition that alters available income or increased household expenses). However, as of November 1, 2012, homeowners whose mortgages are serviced by Fannie Mae or Freddie Mac can be eligible for short sale relief if they are current on their

payments but are otherwise facing financial hardships.

Deed In Lieu of Foreclosure - A deed in lieu of foreclosure (sometimes called a lieu deed) is a process that allows the homeowner to give up all legal rights to the mortgaged property in exchange for full satisfaction of mortgage obligations. A lender cannot get a deficiency judgment if it accepts a deed in lieu of foreclosure.

Chapter 7 Bankruptcy - Bankruptcy can sometimes be an option for homeowners facing foreclosure. For homeowners seeking to keep their home, filing for Chapter 13 relief can help restructure payments. For homeowners who want to be rid of the property, a Chapter 7 bankruptcy can help.

Whenever a bankruptcy is filed, an “automatic stay” arises. The automatic stay has the effect of stopping all pending litigation against the homeowner, including foreclosure actions. The homeowner may be able to use the breathing room created by the automatic stay to make arrangements for the property other than having it go through foreclosure. Even if the property does go through foreclosure, a Chapter 7 bankruptcy can relieve the homeowner of any deficiency judgment in the event that the property sells for less than what the homeowner still owes on the mortgage.

Defending against a foreclosure action in Illinois is complicated and should be done with the help of an experienced attorney. The Law Offices of Gilbert C. Schumm is committed to working with homeowners in the Schaumburg, Arlington Heights, Palatine, Des Plaines, Mt. Prospect, Hoffman Estates, Bartlett, Streamwood, Hanover Park, Elk Grove Village, Rolling Meadows, and Roselle areas who have fallen behind on their mortgage payments and are facing foreclosure. We have extensive experience in real estate disputes and litigation, and we are dedicated to obtaining the best outcome for you. To schedule a free consultation to discuss your home retention options, please call us at (847) 559-9109.