Are you one of many Chicago homeowners who have come to realize that their home's market value is currently lower than the current mortgage amount for the home? Do you also realize that your mortgage payment is no longer affordable for you? Before going into foreclosure, why not consider a "short sale"?
It would be nice if you were able to some how come into a windfall and magically catch up on all of your mortgage payments and subsequent fees, but for many Chicago homeowners that's simply unrealistic. So, instead of making the situation worse and hiding from your lender's phone calls or walking away from the property all together, there may be a better solution.
Here's the lender's secret: Lender's are NOT in the business of owning homes. They want to make as much money as they can off of the risk they took giving you the mortgage in the first place. Essentially, they are looking to save time and ward off any additional losses on their end. When a lender realizes that a foreclosure is a definite outcome, the short sale is most likely the preferred route because foreclosures are expensive and time-consuming. Also, the lender doesn't want foreclosures on its books. Ultimately, foreclosures hurt their bottom line.
And foreclosures hurt you. A Foreclosure will show as A Foreclosure or A Debt NOT PAID. It is a very negative mark on your credit that can stay there for up to seven years! A short sale will show as - Debt Paid or settled. It is a much better mark and will make it easier for you to get credit in the future. A foreclosure may also allow for a deficiency judgment against you making you liable for the remaining amount on the loan if your home does not sale at auction (or as an REO) for the full amount you owe on the house. Once a judgment is placed against you, the lender can proceed with further legal actions and garnish your wages to collect on the debt.
But make no mistake about it, you must convince the lender to accept a short sale. Working with a real estate agent trained in the short sale process, would definitely help your odds. A short sale really isn't a do-it-yourself process. Nonetheless, I'm sure some of you will try and do it anyway. There are several letters and additional information that you should work (with your real estate agent preferably) to assemble.
1. You'll want to have a notarized letter authorizing the lender to discuss with your agent.
2. You will also want to put together a letter proving that your financial situation is dire. You will most likely have to be 90 days behind on your mortgage payments and have no cash or anything that can be liquidated to reduce your debt. This includes jewelry, cars, time shares, etc. Plus, you will have to show that the situation is only going to get worse and there is no way in the near future that you might be able to bring your mortgage current. You should show as much documentation as you can. This is not the time to be embarrassed by your situation. Bare it all! Divorce papers, job loss, utility shut offs, medical bills, your last two years' tax returns, recent pay stubs and recent bank statements are all fair game. The more information you supply, the more likely your lender is to approve your short sale.
3. BPO (Broker's Price Opinion) or an Appraisal that states the homes current market value. The lower the estimate is, the better it is for you. The objective is to show the lender that you would not be able to sell the home for the amount due on the mortgage. It's important to specifically point out all of the bad characteristics of both the neighborhood and the home itself. Are there a lot of homes for sale on your street? How many foreclosures in your neighborhood? Is the crime rate growing in your neighborhood? Is the school system poorly rated? The lowest valuation possible is critical in getting your lender to approve a short sale. Remember the lender does not want to hold onto a home for any length of time. Your job is to truthfully convince your lender that a short sale is the better option.
4. Bring a solid offer with earnest money! Work with your agent to review all offers making sure to pay attention to the elements that make for strong offers to purchase. Make sure that the buyers are aware that this is a short sale and that only serious offers will be considered! The lender won't want to deal with tentative offers. Buyers must be required to put their best offer on the table and secure it with a sizable earnest money deposit.
5. A net sheet for the lender would also be helpful. Your agent or real estate attorney should detail what the closing costs will be and what the lender will receive (and loose) is very important in helping move the short sale process along. Remember, if you have more than one lender (some 80/20 loans have two separate lenders), all lenders must approve the short sale.
The amount the lender has forgiven used to be considered income to the seller and therefore was taxable. However, the tax laws have changed and tax liability has been relieved. It is important to make sure that the lender has waived its right to a deficiency judgment that would allow for the collection of the remaining balance of the loan. Negotiate with the lender to agree on a "release" and "satisfy" position, which means no deficiency judgment to consequence the short sale.
Convincing the lender is a process and you must have all of your ducks in a row. Know that lenders are most likely to only consider your short sale request of you are far behind on your payments and having recently received a notice of default. Additionally, if you have filed for bankruptcy, a short sale will most likely not be approved because negotiating a short sale is considered a collection activity and collections are prohibited in bankruptcies.
Yes there are cons to a short sale from the seller's perspective. You will loose your home (but you would have lost anyway in a foreclosure). You wont make a profit and your credit score is take a dive. But given the lesser of two evils, I'd highly recommend considering a short sale.
Author Resource:-
Teddy A. Waas III holds post-graduate degrees in both finance and economic. He is a freelance writer and educator living in Chicago and has written content for various websites on topics such as becoming debt free, becoming a music producer, and information on Chicago laser hair removal.
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