"Hello Foreclosure, today's the day!" says no one ever.
Foreclosure may seem far off when the first 90 day late notice lands in your mailbox. Mortgage lenders are often slow to respond to late payments and it can vary by lender.
In Illinois, a judicial foreclosure state, it can be a very long period of time between a 90 day late notice (pre-foreclosure) and the Sheriff knocking on the door to evict a home owner.
In fact, banks prefer short sales over the lengthy foreclosure process. Many lenders have relaxed their rules for what falls under a short sale requirement and some have even offered a closing cost credit up to $3,000. Not all lenders offer this credit and not all will participate.
But one of the best ways to avoid a foreclosure is to sell your home as a short sale. A short sale means the bank allows you to sell the home for less than what you owe on the mortgage.
For example, if you owe $300,000 but the home is worth $200,000 on the current market (what a buyer would pay for it today), the bank will allow the home owner to sell it at the $200,000, at a loss or a "short" on the loan. However, there are other issues you should look into, including taxes on forgiven amounts, 2nd mortgage loans, filing for bankruptcy protection, credit score impact, and more.
Start planning for a short sale on your Fox Valley home in 4 steps
1- Finances and your home
Fail to plan and the plan will fail. Don't wait to learn about your options to foreclosure. For your first step, begin with examining your full financial picture, including your mortgage, late payments, HELOC's, liens, 2nd mortgages, and late charges from any Home Owner's Association. This is the time to decide if you want to keep the house or sell the house. Don't wait for an auction date or 90 day notice. The earlier you are pro-active to find out what can work for you, the better. Your mortgage lender may offer you a variable repayment term, a loan modification, or a grace period if your financial stress is temporary.
Knowing your needs at this important point will help you make an informed decision, and if a short sale is a good option for your situation. Short sales are complicated and have many different parts.
Did you know?
In most cases, the home owners can remain in the home while the short sale process continues, sometimes for 6-8 months or longer until the sale is finalized. Even better, short sales are done with no out of pocket expenses to the home seller. The seller does not pay an attorney fee, any agent commissions, home repairs, or closing costs. The short sale lender handles all these fees, so a short sale will not cost the home owner any money to sell it. This has a strong appeal for many home owners facing a distressed financial situation, especially for a home in need of repairs.
Find out your home value here: What's Your Home Worth
2- Build your team
Building a team of professionals is key to getting your short sale handled, processed and completed in a timely matter. Local experts, who have an established track record of negotiating with lenders, is important when considering a short sale. One part of the foreclosure process may involve a court hearing regarding an auction date. An attorney may need to represent your case in court, to temporarily stay an auction date, or to cover other legal issues arising from the foreclosure process. This is why it is important to have reliable legal representation. Not all attorneys handle the negotiations with the banks and lenders. Be sure yours will do so and has experience with the process.
Next, home owners facing a foreclosure and want options, should talk with an experienced short sale real estate agent who has successfully completed short sales in your local area. This is a great expert to add to your team because not only will they list your home for sale, and bring you a ready buyer, your mortgage lender will insist the home is professionally listed with a licensed agent on the MLS, in order to retain top dollar. Your agent markets the home at current market value, but in As-Is condition. They also will find a buyer who will agree to wait for the short sale to close. The short sale process usually takes much longer to close than a regular home sale, up to 12 months, in some cases.
Did you know?
Not all real estate agents handle short sales, so be sure to verify they are experienced to handle it. They should know short sales are sold as-is, with no repairs needed, what an arm's length transaction is, and ask if your HOA is current and paid up to date (or the lender will not agree to the sale).
3-Preparing your submission packet for the bank(s)
Every mortgage company from Wells Fargo to Chase has its own set of requirements and restrictions on a short sale submission packet. Some lenders use a standard form, others may have their own separate form to apply for a short sale. One of the biggest complaints about short sales is the paperwork. Coming in a close second, is the extremely long response times from a lender.
Here’s a partial list of what the average short sale offer packet requires for the initial review to begin.
1 Authorization to Release Information to Third Party
2. Listing Agreement (from your Short Sale Realtor)
3. Listing Addendum (from your Short Sale Realtor)
4. MLS Listing Page – Contingent (from your Short Sale Realtor)
5. Bankruptcy filing paperwork (if it has been completed)
6. Auction notice (if notified)
7. Universal Mediation Form
8. Hardship Letter explaining your situation, like job loss or illness
9. Financial statement outlining your monthly bills and cash flow
10. Bank statements, past 60 days
11. Pay Stubs, past 30 days
12. Tax Form 4605-T
13. Tax Returns (most recent last two years’)
14. Contractor letter explaining repairs and costs (if needed)
15. Sales Contract (From the buyer’s agent)
16. Sales Addendum (From the buyer’s agent)
17. Pre-approval letter or proof of funds (from the buyer)
Many lenders have all this and more to file a short sale. This is just the start of the process, which can take any where from 3-6 months to finally close the sale. Interested buyers may put in an offer and get discouraged when the bank fails to respond quickly. Your attorney and real estate agent can handle the heavy lifting of following up with the lenders, to keep the file on track.
Due to the long turnaround time and realizing multiple negotiations are necessary for the short sale to proceed, homeowners need to have extra patience for this short sale process.
Did you know?
A short sale is rarely is done quickly, even with an experienced team in place.
4- Close on the sale of your home
The good news is that while the short sale process is underway, the home owner can remain in the home. Auction dates are usually postponed by your attorney and the owner has a reprieve.
Often this time period is helpful for building up cash reserves and looking for a new place to live. Some folks consider consolidating debt under a Chapter 7 or Chapter 11 bankruptcy, to gain a financial breather as well. Consider too, avoiding a foreclosure by doing a short sale may reduce the impact on your credit score. A foreclosure will stay on your permanent record for 7 years, like a bankruptcy. A short sale is often seen as less negative and you may be able to qualify for a mortgage much sooner.
The closing is structured the same as a regular closing, with your attorney working to gain clear title to the property and the home owner clearing out the property. Moving week arrives with the final clean out of the property. On the last day, a final walk through with the buyers is scheduled, and a then it's ready for final paperwork at the closing office. Your attorney may be able to take care of the final closing documents for you and you may not even need to attend the closing in person.
Get the details
Your real estate agent can also help find you a rental if you need one, or if you're in the Chicago area, you can reach me directly at (630) 854-4360 to discuss your options.
Don't wait on finding out what your options about a foreclosure. You can talk to a Illinois attorney here:
Jackson Abdalla Law Group or call (773) 550-3853.
All real estate markets are local, so be sure to talk to someone who is a local St. Charles and Elgin area expert. Comment below and tell me about your plans. I can help!
Get my free guide Preparing Your Home For Sale Guide.
Jennifer Kinzle, Premier Agent
Charles Rutenberg Realty of Naperville, IL
Fox Valley Homes Specialist, 630-854-4360
Find your new home here: Fox Valley Home Sellers
About me: I take a deep dive into coffee, chocolate, and real estate in the St Charles and Fox Valley area. I enjoy blogging, selling homes, finding great investments, and helping buyers and sellers with all their questions.
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