Chicagoland Short Sales & Foreclosures
Buying or selling distressed home should involve a real estate attorney who can address the myriad legal issues involved in these properties. Here are basic examples.
Short sales: If you owe more on your home than what it’s worth, but you wish to sell, a short sale might be permitted by your mortgage lender. In a short sale, the lender agrees to accept a payoff amount that is based on current market value, after transaction expenses.
This would allow you to part ways with the property, without having to pay the difference between your true mortgage payoff and the actual sales price of your home.
Short sales involve a number of conditions. Lenders usually require that you have experienced a “qualifying hardship.” They may require proof that you lack the financial ability to sustain your mortgage payments long-term. (You do not have to be behind on your mortgage payments.)
The exact qualifying criteria for a short sale will vary by your type of mortgage, and the lender involved. Upon request, your lender will send you a short sale application with specific forms, documentation requirements and deadlines. Failure to comply with any detail can result in a denial of your request.
There can also be income tax ramifications as the result of a short sale. Forgiven debt is considered income by the IRS. The Mortgage Forgiveness Debt Relief Act provides exceptions from IRS taxation under certain guidelines, but this legislation is temporary by design. It has been renewed on a year-to-year basis by the Federal government, and its treatment by future administrations cannot be predicted.
Short sales can also be daunting for home buyers, as the lender must approve the sale price, and the overall transaction process can take much longer than a typical home sale. Communication breakdowns between the parties involved are a common reason why short sales fail.
Foreclosures: Buying a foreclosed home at judicial sale can present bargains, but also problems. Without due diligence, you could find yourself responsible for back taxes, liens, unpaid HOA fees and occupant eviction. You would also have to honor the redemption period allowed to the former owner.
When the lender acts as the buyer at a judicial sale, the foreclosed home becomes a bank-owned property, or “REO property” which means real estate owned (by the bank.), In this case the home is generally sold as-is, with clear title. The lender may require proof of funds and specific purchase conditions. Buyers of distressed, vacant homes need to be aware of the responsibilities and liabilities that can be involved.
If you are thinking of buying or selling a distressed property, contact Angelina & Herrick today for your initial consultation!