Morning, everyone!
Although the real estate market here in Chicago seems to have picked up a bit in the last couple of weeks, in several neighborhoods and many suburbs, it is clear around here that things are not like they used to be in a typical Spring real estate market.
On beautiful city and suburban streets, and in quiet neighborhoods, we're beginning to see, here and there, the local blight of foreclosed houses, with their boarded-up windows and foot-high front lawns.
As we all know, those behind on their mortgages have options before foreclosure. However, delaying action reduces or removes these options quickly. Here's a summary of the steps a delinquent home borrower can typically take to avoid foreclosure action down the line -
1. REINSTATEMENT. This sounds simple - paying off all past-due payments and late fees in one large payment - but often easier said than done. Even if a borrower does find the money to reinstate - by borrowing from a friend of close family member, for example - the likelihood that payments can fall behind in the future remains high. In Illinois, a borrower can usually reinstate only once in five years.
2. FORBEARANCE. This is a negotiation with the bank to pay past-due payments over time. Of course, the lender will want proof a delinquent borrower will live up to the agreement.
3. MORTGAGE MODIFICATION. Sometimes, although this is relatively rare, a lender will negotiate new, extended terms when a borrower is late, but only if action is taken early on, and the borrower's financial condition is stable.
4. SELLING THE HOUSE, and moving into a rental, or a more affordable home. In today's market, however, lack of home equity limits your leverage on a new home purchase. Also. delinquency on your current loan may have impacted your credit score, and make it difficult to find a new home mortgage.
5. SHORT SELLING, orselling your home for less than its mortgage balance. The bank sets many procedural requirements here, and potential buyers must be patient, as the bank's approval process can take as long as eight weeks, in some cases. Separate short sale agreements will have to be worked out with subordinate mortgage holders.
For short sales, it is important that the bank waive their right to file a Deficiency Judgment to pursue forgiven debt. Also, foregiven debt, in certain situations, may be subject to Federal Income Taxes. Although recent cnanges to federal law limit this, check with an accountant to see if you would have any tax exposure should you sell short.
6. REDEMPTION. This only happens AFTER foreclosure. In Illinois, a foreclosed borrower has a 30-Day Redemption Period after the Foreclosure Sale Date, to bring their payments current, and avoid losing their home.
Please see our post today at BlogChicagoHomes.com for more information, as well as a link to Mary Umberger's column in the April 13th edition of The Chicago Tribune.
DEAN & DEAN'S TEAM CHICAGO
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