Understanding a Short Sale in Illinois

 Posted on June 07, 2019 in Foreclosure

Over the last several years, the nation’s economy has shown steady signs of improvement, but there is still a long way to go in many areas. When people go through tough financial times, some may find it necessary to sell what they own for far less than those assets are worth. In some cases, even applies to residential real estate in some cases. When a property is sold for a price that is less than the amount remaining on the mortgage, the transaction is known as a short sale.

Four Requirements for a Short Sale

A short sale is often a complex undertaking for several reasons. First, selling a house is almost always complicated. Next, since the sale price in a short sale is less than what the owner owes on his or her mortgage, the remaining amount of the loan must be taken into account. Finally, a short sale can only work if each party involved is on the same page regarding the transaction. The most difficult part of the process is often convincing the lender to allow the sale.

Obtaining a lender’s permission to allow a short sale usually requires four particular items, including:

• A letter of hardship explaining why the borrower defaulted on the mortgage;
• Evidence that the market value of the property is less than the amount remaining on the mortgage plus closing costs;
• Proof that there is a buyer who is not related to the seller and willing to buy the property; and
• Credible evidence indicating that a short sale is the best option.

The third requirement, in particular, is one of importance. A person might try to transfer ownership of the property to a family member in an attempt to avoid foreclosure, but doing so is prohibited by the Illinois Fraudulent Transfer Act. Even with all the items present, a request for a short sale could still be rejected, but providing them all will give a borrower in default the best possible chance of being approved.

Following the Sale

Presuming that the short sale is approved and is completed as intended, the borrower must still contend with the amount remaining on the loan. Under Illinois law, this balance may be taken care of in one of two ways. The mortgage lender could forgive the remaining debt—which must be reported in the borrower’s tax filings—or the lender could file for a deficiency judgment. Such a judgment allows the lender to collect the balance due through any legal means including wage garnishment and liens on other property that the borrower may own.

A borrow seeking a short sale could include a proposal to have the remaining balance waived with the initial request and hardship letter. It is best to address this concern early in the process to avoid unpleasant surprises down the road.

Contact a Libertyville Foreclosure Defense Attorney

If you are facing the possibility of foreclosure, contact an experienced Lake County real estate attorney to discuss your options regarding a short sale. Call 847-549-0000 for a free phone consultation at Newland & Newland, L.L.P. today.

Sources:

https://www.irs.gov/taxtopics/tc453.html

https://www.dcba.org/mpage/vol300118art3