Many homeowners in Oak Park, Illinois are getting to the point at which the foreclosure crisis no longer feels like a threat as neighborhoods throughout Chicagoland continue to recover. However, many homeowners continue to face foreclosure, and a lot of those individuals do not understand their options when it comes to foreclosure defense and methods for keeping their home. In some cases, foreclosure avoidance tactics allow the homeowner to keep his or her house, while in other cases, they do not.
A recent article in Forbes discusses the difference between a short sale and a foreclosure. We want to say more about whether a short sale is better than a foreclosure, and to provide more information about other ways of avoiding owing money once a short sale goes through.
What is a Short Sale?
Many homeowners are confused about the distinction between a short sale and a foreclosure. They do have certain similarities, with the most obvious being that both a short sale and a foreclosure result in the homeowner losing the property. However, a short sale can be much better for your credit. A short sale, importantly, is not foreclosure. As such, it is a way of avoiding foreclosure.
So what is a short sale? As the article explains, a short sale is a type of sale that involves selling your house for a total price that is less than what you owe on your mortgage. For instance, if you purchased your home at the height of the market for $500,000, it may have declined significantly in market value since then. As a result, with the mortgage payments you have already made, let us say you still owe $475,000 on the mortgage. However, with the current market, your home is valued at only $400,000. You are able to find a buyer for that amount, but it leaves you with a deficit of $75,000. Since “you are technically coming up short” by $75,000, this type of sale is known as a short sale.
Other than the shortfall, a short sale works much like any other home sale. Many homeowners work with real estate agents and advertise the property in the same way they would another house. However, the bank has a final say in who gets to buy the house in a short sale.
Why is a Short Sale Usually Preferable to a Foreclosure?
When a homeowner completes a short sale, the expectation is usually that the bank is going to forgive the remaining amount of debt. In the example above, the bank would be forgiving the $75,000 that the homeowner still owes on the mortgage. In some cases, however, the bank tries to recoup the money.
As the article clarifies, some short sales result in the mortgage lender filing a “deficiency judgment” against you in an attempt to obtain the “shortfall” amount from the sale. In the example given above, the lender might seek a deficiency judgment for $75,000. While some states do not allow mortgage lenders to file deficiency judgments in these circumstances, Illinois law does allow for deficiency judgments after a short sale, but there are ways to avoid them.
If the short sale agreement between the homeowner and the mortgage lender expressly states that the mortgage lender is giving up its right to seek the “shortfall” amount, the lender cannot file a deficiency judgment. Even if the lender will not agree to this type of clause, it is important to know that the lender will not automatically receive a deficiency judgment. Rather, the mortgage lender will need to file a claim, and the court will need to award the deficiency judgment. Under Illinois law, deficiency judgments are prohibited after a deed in lieu of foreclosure, and they are permitted after a foreclosure.
Contact an Oak Park Foreclosure Defense Attorney
If you have questions about short sales, avoiding foreclosure, and deficiency judgments, an Oak Park foreclosure defense lawyer can help. Contact the Emerson Law Firm today for more information.
See Related Blog Posts:
Recent Court Case Addresses Role of Third-Party Buyers in Foreclosure Sales
How the Government Shutdown Has Affected Foreclosures