Shortsale & Foreclosure Information



what is a short sale

In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoidance of having a foreclosure on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure.

Who qualifies:

Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.

Lenders have a department (typically called a loss mitigation department) which processes potential short sale transactions. Typically, lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the locality where the property is located. Lenders have to approve of any buyer’s or listing agent’s commission in advance, a primary reason for non-brokered short sales with a specialist or facilitator to save on the margin. Many of these facilitators work with a private lending party for their financing, such as a partner or syndicate.

Obstacles:

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator’s approval. “Red tape” is very common in short sales, similar to REO and HUD properties, requiring potentially multiple levels of approvals and conditions. Junior liens, such as second morgagees, HELOC lenders, and HOA (special assessment liens), may need to approve of the short sale. Frequent objectors to short sales include tax lieners (income, estate or corporate franchise tax – as opposed to real property taxes, which have priority even unrecorded) and mechanic’s lien holders. It is possible for junior lien holders to prevent the short sale.

While it is common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance. Further, it is also common for a lender to omit updating the zero balance and settlement option on the mortgagor’s credit report, or even flat refuse to do so “due to their financial loss.”

ssprocess copy

When considering a short sale, it is important to keep in mind that the bank has to approve the short sale. Even though your home may be worth less than you currently owe, a bank will only consider a short sale if a homeowner exhibits a financial hardship. You can find out more about what qualifies a person for short sale here or explore your other options here.

What is the short sale process?

The first step is to list your property for sale and allow us to market the home. Here at RE/MAX House of Real Estate, your home will be syndicated on over 2,500 sites and will be featured on the big ones (Zillow, Realtor, Homes, Trulia). You can read more about our marketing plan here.

How quickly we receive an offer will be determined by current availability on the market, location, correct pricing, as well as a number of other factors. Our years of experience enable us to advise you in selecting the best offer for you and the bank (Remember, the bank will have ultimate approval.). Read on to find out what happens once you are under contract.

Short Sale Packet

Once you have accepted an offer, a short sale packet will be prepared to submit to your lender during the attorney review/inspection period. When you list a property with us, we ask you to fill out several documents that will become a part of your short sale packet. During the attorney review period, we ensure that all documents are correctly filled out and financials are current.

  • Pages can get lost, documents go missing, or signatures are left off. The short sale packet is often 100 pages or more and is faxed to your lender(s) to review. Since the packet is so large, it often takes a few weeks for the bank to process. If one page is missing or a signature left blank, the entire document is not processed.
  • By the time a short sale packet makes it on someone’s desk, many documents may be outdated. Due to the length of time it takes to process a short sale packet, many pages may be outdated by the time a negotiator finally reviews everything.

What we do:

We are diligent in our communication with all lenders and request weekly updates so we know exactly where we are in the process. When a lender requests a document, they often require the document to be returned within 24 – 48 hours. You will be notified right away of any documents your lender is requesting.

What you can do:

Make a note of the statement date for bank statements and pay stubs. When a new one becomes available, send it over right away. We find that it helps if the homeowner is proactive throughout the process and joins us in making weekly calls to the lender. Lastly, keep an eye on your inbox for any messages from us and be sure to respond.

Bank Evaluation

A negotiator will be assigned to your file and act as the point of contact between your lender and listing agent.

Your lender will schedule an appraisal or BPO (mini-appraisal). Although the bank is agreeing to accept less money than what is owed, they expect to receive current market value for the home. An appraisal or BPO is their way of finding out what the property is currently worth.

The negotiator may ask for additional bank forms. The process for short sale is constantly changing as new programs become available and old ones fade away.

What we do:

Our years of experience have allowed us to develop a working knowledge of what the process is with each lender. You can view all the lenders we work with here. We have nearly all bank documents on file for each lender so we can send you exactly what your lender requires. Keep in mind, however, that the bank does occasionally update documents and we do too.

What you can do:

Not to sound like a broken record, but stay proactive! Though it can become tedious, the best thing you can do is follow-up with your lender just like we do. Also, be sure to make your home available for the appraisal and keep an eye on incoming emails. The bank typically has a 24 – 48 hour deadline on all documents or they will start the short sale process over.

Approval/Closing

You’re on the homestretch! We have finally received short sale approval for your property! There will be a few additional documents to be signed and, depending on your area, a village inspection may need to be done. If the buyer is getting a mortgage, they will complete that process upon receiving short sale approval. The buyer will also perform a final walk-through of the property before closing, at which time the property is expected to be vacant.

credit effect

Foreclosure:

The foreclosure in Illinois is a Judicial Foreclosure. This means that the foreclosure must be approved by a Judge. This means that if a person’s home is foreclosed on, that they will actually have a judgment against them on their credit report.

A foreclosure will remain on a credit report in the public records section for 10 years. The other issue with the foreclosure is that on loan application (for purchasing a new home), under Declarations, Section VIII it specifically asks a borrower if they have had a property foreclosed upon in the last 7 years.

The other issue with a foreclosure in Illinois is the Deficiency Judgment. The lender has the right to ask the court for a money judgment against the previous home owner personally.

The last problem is bankruptcy. The bottom line is that if previous home owner had the money to pay for the home, they would have.

In the end:

The home owner will most likely have 3 judgments (including bankruptcy) and get docked at least 300 points on his or her credit report.

Short Sale:

The short sale is very different. The nicest part of a short sale, is that it is NOT a judgment. It is an agreed apon arangement between you and the mortgage holder. The other nice feature is that banks do not generally ask for any of the losses back from you the previous home owner.

In the end:

If the home owner does go through a Short Sale and the bank does not request a money judgment, the homeowner’s credit will be affected by as little as 100 points.

Other good news:

Fannie Mae now only requires 24 months’ seasoning for a new loan.

mortgage forgiveness

Mortgage Forgiveness Act of 2007

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation:

What is Cancellation of Debt?

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

  • Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
  • Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
  • Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

 

These exceptions are discussed in detail in Publication 4681.

 

What is the Mortgage Forgiveness Debt Relief Act of 2007?

The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?

Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?

No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing

separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?

Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

 

How long is this special relief in effect?

It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?

The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?

Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.

Do I have to complete the entire Form 982?

No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?

If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.

How do I know or find out how much debt was forgiven?

Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car loans?

Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.

If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?

Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.

I lost money on the foreclosure of my home. Can I claim a loss on my tax return?

No. Losses from the sale or foreclosure of personal property are not deductible.

If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?

Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.

If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?

Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Will I receive notification of cancellation of debt from my lender?

Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.

What if I disagree with the amount in box 2?

Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.

 

How do I report the forgiveness of debt that is excluded from gross income?

(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.

(2) File Form 982 with your tax return.

My student loan was cancelled; will this result in taxable income?

In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation.

Are there other conditions I should know about to exclude the cancellation of student debt?

Yes, your student loan must have been made by:

(a) the federal government, or a state or local government or subdivision;

(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or

(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization.

Can I exclude cancellation of credit card debt?

In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681.

How do I know if I was insolvent?

You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.

How should I report the information and items needed to prove insolvency?

Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation.

To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.

My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?

Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples.

Are there any publications I can read for more information?

Yes.

(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.

(2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.

short sale terms

Bankruptcy: A legal alternative that allows the borrower to clear any debt obligations by restructuring the payment terms. A bankruptcy stops the foreclosure process until the bankruptcy process is completed or the court allows the lender to resume the foreclosure.Deed in Lieu: Voluntary conveyance of title in exchange for a discharge of debt.  The house must be free of other liens and must have clear title.  In simple terms, the borrower agrees to transfer title of the property to the lender, who accepts the property in exchange for the total debt.

Deed of Trust: A legal document that dictates the terms of a loan used to buy a property and transfers the ownership of the property to a third party called a trustee until the loan has been paid in full.

Default: Occurs when the borrower does not meet its legal obligations according to the loan terms.

Forbearance: Under a forbearance agreement, the lender agrees to stop the foreclosure process and determines payment terms that, at a certain time, will bring the borrower current.

Foreclosure: A process in which a lender attempts to recover the amount owed on a defaulted loan. The lender has the option of selling the property or repossessing the property. The beginning of a foreclosure process starts after a borrower defaults on mortgage payments and the lender files a Notice of Default or Lis Pendens.

Lien: A legal claim on a property by a lender or other entity (called the lien holder) against the property owner that owes the money.

Lis Pendens (LIS): A publicly recorded notice of a pending lawsuit against a property owner that may affect the ownership of a property. This process is required in a few states to begin the foreclosure process if a borrower is in default.

Loan Modification: A transaction in which lender agrees to modify any or some of the terms of the mortgage. This is a process where an existing note is modified, but not cancelled. Changes may include: extending the term of the loan, changing the monthly payments, changing the interest rate, etc.

Notice of Default (NOD): A publicly recorded notice stating that a property owner is behind scheduled loan payments for a loan secured by a property. This process is required in a few states to begin the foreclosure process if a borrower is in default.

REO (Real Estate Owned): A class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction.

Reinstatement: Occurs when the property owner pays off the amount in default to bring the loan payments current in order to stop the foreclosure process and return to the original terms of a loan.

Short Sale: (Also called “Short Pay” or “Pay Off”) A process in which a lender agrees to receive a lower amount of an owed debt in exchange for the sale of the property to a third party.

faq

What is a short sale?
A short sale in real estate occurs when the outstanding loans against a property are greater than what the property can be sold for.What if my home is worth more than my loans, but I could not pay the closing costs?
That can still be a short sale.

Who will pay your commission?
The bank will. We do not receive a commission unless your property is sold.

Who will pay the attorney?
The bank will. Our preferred attorney’s will never send you a bill, even if your property is not sold.

Who will pay the Title Company?
The bank will.  Our preferred title companies will never send you a bill, even if your property is not sold.

How much work will this take?
Very little. We have an in-house negotiator who will handle the majority of communication with your lender(s). Click here to get a better idea of how the short sale process works.

If I am going through foreclosure, can I do a short sale?
YES. In fact, the bank will be more than happy to work with you on a short sale. It is to the banks and your advantage to work out a short sale.

Why is it to my advantage to do a short sale?
A foreclosure will hurt your credit up to 200 points more than a short sale.

Can I stay in my house until the short sale is completed?
Yes. You will not have to move out until the closing.

shortsale vs foreclosure

Issue

Short Sale

Foreclosure

Credit Score A short sale typically affects the homeowner’s credit score by as little as 100 points The largest impact comes from missed mortgage payments (usually around 30 points per missed payment). A foreclosure stays on your record for 10 years and your credit score potentially lowered 300+ points.
Credit History There is no judgment for performing a short sale as this is an agreed-upon arrangement with the bank. Upon sale, your mortgage lender usually reports the short sale as “paid”, “settled in full”, or “paid as negotiated” on your report. A foreclosure stays on your credit report for 10 years and is permanent in public records of the county your property was foreclosed.
Current Employment A short sale does not show up on your credit report and does not affect current employment. For some sensitive positions, a foreclosure may be immediate grounds for re-assignment or termination.
Future employment Since a short sale does not show up on your credit report, it does not typically affect future employment. A foreclosure has a large negative impact on your credit score and may affect future employment.
Future loan with a mortgage company You typically do not have to disclose that you had a previous short sale when requesting a mortgage loan. On a loan application, under Declarations, Section VIII, it specifically asks a borrower if they have had a property foreclose within the past 7 years. Answering “yes” to this will affect potential interest rates.
Deficiency Judgment A mortgage lender typically gives up the right to pursue a deficiency judgment. A mortgage lender has the right to pursue the deficiency judgment in all foreclosures.
Deficiency Amount A short sale is sold at or near market value, which is typically a greater value than a foreclosure sale, resulting in lower deficiency. A higher selling price helps cut your lender’s loss. If a home does not sale at foreclosure auction, it becomes a bank REO property. This results in a longer sale time and potentially higher deficiency judgment for the homeowner.

foreclosure facts

ARE YOU IN FORECLOSURE?

Recent events in the real estate market have led to a record number of foreclosures in the Chicagoland area and nationwide. Listed below are the most likely situations that lead to your property being foreclosed on….

  • The enormous amount of underqualified loans many sub-prime lenders gave out
  • Adjustment of ARM’s
  • Borrowers unable to keep up with current mortgage payments
  • Divorce
  • Death
  • Relocation
  • Over valued properties
  • Predatory lending situations/mortgage fraud
  • Loss of job
  • Unable to sell your property due to market conditions

No matter which situation leads you into foreclosure the fact remains that a foreclosure on your credit rating will tarnish your credit for at least 7 to 12 years. Your credit is worth more than you might think. It can affect everything you do from renting an apartment, obtaining a credit card, determining your auto insurance rates, and purchasing a vehicle. Once you turn back a large asset such as a property into foreclosure, creditors will take notice. Most likely creditors will not extend credit to you or charge very high interest rates for the higher risk. Moving on with your life after foreclosure can be quite difficult for at least a decade afterwards.
You can avoid foreclosure… We can help.

As real estate agents who specialize in Short Sales, we are committed to personally help as many people as we can avoid foreclosure.. You do have options available to you to avoid foreclosure and this is where we come in. First, you need to know these facts about foreclosures…..

  • Over 95% of realtors have no idea of how to handle short sales and foreclosures
  • Many “professionals” fail to let you know your options
  • The next 2-3 Years we will see a record number of foreclosures come into the marketplace keeping property values from rising
  • Lenders DO NOT want to foreclose on your home
  • Lenders are in the business of lending money not reposessing homes and then selling them again
  • Even though you may be in foreclosure YOU STILL OWN THE PROPERTY AND HAVE RIGHTS!!!

WHAT ARE YOUR OPTIONS?

There are several options available to you, depending on your situation and goals.

Do you want to stay in your home or just get out of it all together?

Can you keep up with your monthly payments or is just not possible anymore?

Can you keep up with your monthly payments if you had a lower interest rate?

The answers to these questions can help in determining what your best option may be. For a full list and brief explanation of your options click on “Alternatives to Foreclosure” section on this website.

Here are some other facts about foreclosures you should consider:

  • In Illinois the foreclosure process is a lengthy and can take up to 9 months after the notice of default date. This can be delayed if you have the proper representation. Therefore, after you have missed your first payment it can take approx. a year before your lender will actually foreclose on you and repossess your property.
  • For the Banks/Lenders the foreclosure process is COSTLY. They don’t want to be in the business of repossessing properties, maintaining properties, and then selling these properties.
  • Lenders do not like excess inventory or foreclosures on their books
  • Lenders can lose a lot more money if the property goes to auction.
  • Lenders are not in the business of selling properties they are in the business of loaning money to people who buy properties. Selling properties is looked as a loss to their bottom line.
  • A home owner who goes through foreclosure is ineligible for a Fannie Mae backed loan for 5 years thereafter, and an investor owner for up to 7 years.
  • Future mortgage loans and interest rates will be affected because the foreclosed homeowner must answer “Yes” to form 1003 Uniform Residential Loan Application question “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”
  • A foreclosure affects credit scores downward 250 to 300 points, typically for over 3 years.
  • Foreclosure stays on credit history for approximately 10 years.
  • Current and future employment may be affected as many employers now require credit checks, particularly for employees in financial or sensitive positions.
  • Outside of conviction of a crime, foreclosure is the most serious issue affecting security clearance for your job. For those who have careers in law enforcement, the Military, a security company, the CIA or other government agencies, a foreclosure could mean the immediate loss of the security clearance and the position.

Remember, if your facing a foreclosure you do have options and alternatives. The sooner you act the more options you have. We strongly encourage you to call 773-360-3443 for a consultation where we can further assess your situation.

Our home default specialist team is fully staffed from an attorney who specializes in these situations to a full loss mitigation team of professionals who know how to talk to your lender. You are covered every step of the way.

And remember our services are free of cost to you. We earn our commissions by negotiating the short sale and selling your property. Our commissions are paid by your lender.

foreclosure 101

Below outlines the general foreclosure process. Please note that no case is exactly the same. We recommend that you contact a local professional to discuss your individual situation. The entire foreclosure process in Illinois takes, on average, 9 months.

Property owner is 30 days late on their mortgage payment.
Typically, missing your first mortgage payment will not put you at risk for foreclosure. You may, however, begin receiving calls and letters from your lender, as well as a letter of intent to foreclosure. Once you are 90 days behind on your payments, your mortgage lender can legally instigate the foreclosure process.

At this time, it is in your best interest to rework your finances, reach out to your lender for a compromise, or put your home on the market.

Notice to Accelerate
Once you are 60 days past due, your lender will likely send you a notice to accelerate. At this point, the only way to stop your foreclosure process is to pay your past statements plus any late fees and bring your loan current.

Notice of Default (90 days)

At this point, you will receive a Notice of Default (NOD) in the form of a certified letter from the bank, an attorney, or local sheriff. This notifies the start of a foreclosure process and you should act quickly if you want to stay in your home. The NOD will be recorded with the county your property is located in and may harm your credit.

Notice of Sale/Auction

After the Notice of Default has been filed, a lender can schedule date of sale for the property. The homeowner will be mailed a Notice of Sale at least 120 days before the sale date. There will typically be a minimum opening bid, which, if met buy a third party buyer, allows the new owner to take possession in 10 days.

Post-Foreclosure
In the case that the minimum opening bid was not met by a third party, the property will remain in the banks possession and become a Real Estate Owned (REO) property. This usually occurs when many properties up for sale are worth less than what is owed to the lender. These properties will then be listed with local agents.

foreclosure alternatives

Whether you anticipate yourself falling behind on your mortgage or are already behind, know that you do have several options available to you. There are alternatives to foreclosure that do far less damage to your credit. Consider the following…

If you want to keep the home:

  • Bring payments to current (also, “reinstatement”)
    In Illinois, a homeowner has 90 days from their Notice of Default to bring their payments current. This includes all past-due payments along with any fines and fees associated with foreclosure proceedings.
  • Rent the property
    This may be an option for homeowners with mortgage payments low enough that a rental payment allows the mortgage to be paid. Keep in mind that there are additional responsibilities such as taxes, insurance, landlord duties, etc., and the rental income may not ever cover your expenses entirely.
  • Loan Modification
    If you have fallen behind on your mortgage payments, you may find that your situation changes and you now have enough money to make payments again but are unable to catch up with past payments. In this case, your lender may adjust the terms of your original loan in a number of ways, such as absorbing the delinquent payments and adding them to the back-end of your loan, lengthen the payment period, lower the interest rate, or make an adjustable fate fixed. A homeowner must exhibit financial hardship and provide full documentation to their lender.
  • Refinance
    If you have equity in your home and your credit is in good standing, then you may consider refinancing an unaffordable loan to achieve lower payments. Current home values should be taken into account when considering refinancing to ensure that you qualify.
  • Payment Plan (also, “forbearance”)
    This is a temporary solution that allows you to pay a portion of your regular payment, or no payment at all, for an agreed to period of time based on your financial situation. Once the forbearance period has ended, you begin making your regular payments plus an additional amount to pay off the past-due amount.

If you cannot keep the home:

  • Short Sale
    If you owe more on your home than it is worth and do not want to declare (because it will not resolve your financial situation), then you may want to consider hiring a short sale expert to assist you with the sale of your home and negotiate a short sale agreement with your lender. See our short sale vs. foreclosure page to see the benefits of a short sale over foreclosure. The waiting period to establish credit history after a short sale is generally 2 years compared to 5-7 years following a foreclosure.
  • Deed-in-lieu of foreclosure (also, “friendly foreclosure”)
    This means that you return the deed and house to the bank, instead of facing foreclosure, and walk away. Lender approval is required and this is not an option for you if you have more than one mortgage. The mandatory waiting period to establish credit history after a deed-in-lieu has been lowered to 4 years compared to the 5-7 years following a foreclosure. While a deed-in-lieu may have less of an impact on your ability to own a home in the future than an actual foreclosure, a short sale is generally a better option if you are going to cooperate with your lender.