Frequently Asked Questions – Short Sales – Chicago and Chicago Suburbs
What is a Short Sale?
A short sale in when a property is sold for an amount that is less than the amount owed on the property.
How will a Short Sale affect my credit?
How the short sale affects your credit is dependent on many factors such as how it is labeled on your credit report. It also depends on the state that you live in, how many payments you have missed, and the banks willingness to work with the borrower.
Who benefits from a Short Sale?
In many cases, the short sale is a win-win for all parties involved. Lenders can write off a problem loan off their books and not pay the expense of a foreclosure, borrowers can sell their home with the possibility of the remaining balance written off, and realtors can facilitate the transaction and receive compensation (commission) from the sale of the property.
Why would banks forgive the difference?
Banks may accept a settlement for less than what is owed on the property in order to mitigate losses and write off bad loans. A short sale is often less costly than a foreclosure when you consider the legal expenses and staff time.
Why does my property have negative equity?
Negative equity refers to a situation when the value of an asset is less than the outstanding balance of the loan. In today’s market, partly due to the financial crisis, property values have dramatically fallen in a short period of time so the loan balances may be greater than the loan balance.
What if I owe what my home is worth?
Since selling a home involves transaction costs, a short sale may still be required due to costs such as realtor fees, title policy, and other selling costs.
What is the difference between a foreclosure versus a short sale?
A foreclosure is a legal process where an owner’s right to a property is terminated, usually due to default (or not making the payments). A short sale is a negotiated settlement between the borrower and lender.
What if I’m not behind on my payments?
Sadly, every bank is different in how they handle borrowers who can no longer make their payments. There is no universal answer to this question. Even within the same bank, how your case is handled may be dependent on who is in charge of your loan.
How long does it take?
This also depends on the bank.
What if my home is already in foreclosure?
It all depends on how far you are into foreclosure, the condition of the house, submitted offer, etc. Even if you are just 1 month away from a judicial sale, the bank may decide to suspend the foreclosure if it feels that it can save money by selling at a short sale.
Will my lender send me a 1099 on the debt forgiven?
This is up to lender’s discretion. Borrowers should be aware that the resulting tax obligation will be less than the debt forgiven since the borrower pays the applicable tax rate of the forgiven debt.
How much will the short sale cost me?
Generally, the lender is responsible for the legal fees and any commissions associated with a short sale. There are some costs that the lender may not pay such as association fees.