Is your mortgage payment depleting your savings?
Do you owe more on your property than it is worth and you cannot sell it?
Are you in a financial hardship that will not allow you to continue making the full amount of your mortgage payment?
Going through a divorce and cannot keep your home?
The main advantage is the possibility of being able to walk away from your mortgage debt and get a fresh start. For example, if you owe $100,000 and the house sells for $60,000 at a foreclosure sale, you would be responsible for $40,000 and the bank can go after you for this deficiency. In most short sale cases, the bank issues a waiver of the deficiency, meaning they agree not to sue you for the amount of money they take a loss on (i.e., the $40,000 from the example above). Please know that in most Illinois foreclosures, the bank has the right to pursue you for the deficiency judgment and if they get that judgment they can garnish future wages.
While many sellers do not pay the mortgage payment and are able to continue to live in the home while proceeding with a short sale, you may also qualify for a cash incentive or a relocation fee.
In almost all cases you will pay literally no sales costs if your lender approves the short sale. All commissions, title and attorneys’ fees, and even most other property expenses are paid by the lender as part of the short sale approval.
A foreclosure generally stays on your credit report as a ‘foreclosure’ for 7-10 years. But because there is currently no category on the credit report called ‘short sale,’ a short sale will generally appear on your credit report as debt that is “Paid in full, for less than the full amount.’’
After a successful short sale, you will generally be able to obtain a mortgage to purchase another home in about two years. In contrast, there is usually a four to five year wait after a foreclosure before you can obtain a mortgage again.
If you have a recourse loan (i.e., your lender can pursue you for the difference between the amount they received from the foreclosure sale and the amount you owed at the time of foreclosure), a short sale allows you, your attorney and realtor the opportunity to negotiate with the lender or lenders to give up the right to come after you for any deficiency balance that remains after the sale. If the home goes to foreclosure instead of short sale, the lender can come after you for the debt you owe for many years after the foreclosure.
Initiating a short sale means that you are being proactive rather than remaining at the mercy of the foreclosure process. You are showing the lender that you are doing your best to mitigate their losses. You are also doing the best thing for all parties involved, which will get you out of the situation with integrity and dignity. Future lenders will look favorably on this. If you let the home go to foreclosure, the bank will eventually evict you from the home, this is an embarrassing situation when the sheriff arrives at you home. Do not let this happen to you!
Although there are no guarantees, lenders will often stop the foreclosure and collections process once the Short Sale package has been submitted.