In this article, you will learn:
- Risks when working with a general real estate agent on a short sale
- The benefits of hiring an attorney to handle it
- Why a short sale may be better for you than a foreclosure
All short sales have different requirements in terms of what you must submit to the lender. Often, things get complicated, and there are several aspects of a transaction that can take you down any number of different paths and knowing which path to take can be the determining factor in whether or not your short sale is approved or denied. For instance, if you have an FHA loan, there will be be one set of procedures that you follow to get the short sale reviewed from start to finish while a conventional loan will have a different set of procedures. Also, the servicer that is handling your loan matters because different servicers often have different procedures and guidelines that they follow in determine whether your loan will be approved or denied.
When the bank does not give a favorable response – or if there are problems getting the bank to respond at all – there are different ways to deal with the various roadblocks. In other words, knowing the landscape is very important and knowing how to differentiate between different investors on various loans, what those investor requirements are, and how the process works can make all the difference in the world. For instance, if an investor does not properly respond to a short sale application but still tries to deny your short sale on a technicality so that they can proceed to a foreclosure sale, it is imperative that you have someone working for you that knows how to force the bank to review your request on the merits. Learning how to properly overcome all of the roadblocks that you might encounter is something that can only come from handling thousands of loss mitigation files over the course of decades.
Additionally, banks typically move to push your property into foreclosure soon after you default. When that happens, it is best to have proper guidance on how to navigate the foreclosure process. This is something that can only be done by an attorney. A realtor will not be able to go to court to stop sale dates, get additional time, or to properly present arguments to the court. Ideally, you will have an attorney who is processing your short sale and can go to court on your behalf, especially since your lender will almost always cover all of the fees and costs of the short sale so that you do not have to go out of pocket. You also don’t want to go to court by yourself if you can avoid it. In fact, as an attorney, I wouldn’t even represent in a case where I was a party and would hire someone else. As the old adage goes, “an attorney who represents himself has a fool for a client.”
As with going to court, having an experienced attorney who has handled thousands of transactions is something that you will almost certainly need in order to effectively lodge complaints with bank regulators and governmental agencies if your lender refuses to properly address violations of Regulation X of the Real Estate Settlement Procedures Act or any of the other laws that are applicable to your case. There are ways to escalate complaints to governmental agencies that other agents and, quite frankly, most other attorneys, will not know how to do.
There are basically 1 in 500 things that could go wrong in a transaction. The only way that you know how to deal with them is by having experience and the only way to deal with them effectively is by being diligent. There are countless pitfalls you might encounter and there’s a good chance that you will not be able to effectively get past them if you are not working with someone who has handled a large number of files over several years.
At the end of the day, it’s your credit. You don’t want to have the bank taking a gigantic judgment against you and you don’t want a foreclosure on your record. The fact that the bank will almost certainly cover these fees also means that this service comes at no cost to you. Because of this, you really want to have someone who has been around the block.
Why To Choose A Short Sale Over A Foreclosure
Those two things are not necessarily mutually exclusive. Foreclosure is when the bank goes to try to take your house back and a short sale is where you sell your house for less than you owe your lender. You can still complete a short sale when you are in foreclosure. Really, you can get a short sale done anytime up until the point where the bank sells your house at a judicial auction. Sometimes, you can even get one done after that happens based on the underlying circumstances, though this is not likely.
A very common misconception that people have is that they think that they can just “give the house back to the bank” by allowing the bank complete the foreclosure process by allowing the property to be sold at judicial auction. This is probably the worst thing that one can do as a homeowner. Not only will you have a foreclosure on your record, there is a very real possibility that the bank will take a judgment against you. If this happens you have had your credit destroyed and you still owe the bank money. For instance, if your house has a mortgage for $500,000, it’s worth $300,000, and sells at auction for $300,000, you can be responsible for that $200,000 difference.
Completing a short sale is different. In a short sale you can get an offer to sell the house to a third party at fair market value and we can negotiate with the bank to forgive your debt in exchange for completing the short sale. In this scenario you would not owe the bank anything after the short sale is completed, the foreclosure case will be dismissed, and your credit will improve drastically so that you can walk away from the property and get a fresh start without paying anything out of pocket. Even if you wanted to file bankruptcy to resolve this matter the bank would still need to go through the foreclosure process, and you will have to pay for the bankruptcy as well.
A lot of people think that this sounds too good to be true, but what you must keep in mind is that your lender does not want to keep your house on their books. If the bank forecloses on a property they need to pay their attorneys, pay for insurance, pay property taxes, hire third parties to monitor the condition of the property, and then find a way to get money out of the property. In other words, a short sale results in a better outcome for your lender than if they need to complete the foreclosure process since they get the property off the books, they are done covering carrying costs, and they get money from the short sale proceeds. In fact, banks will oftentimes provide relocation money to sellers who complete a short sale. It is not uncommon to see a bank provide $3,000 in relocation money to sellers, especially if they start early in the process. From time to time lenders will even give $10,000 or more in the right circumstances.
One thing to keep in mind is that investors almost always want to see that there has been some type of hardship that caused you to fall behind on the mortgage before approving a short sale. The bank doesn’t want someone who has had the ability to pay the entire time who just chooses to default and then walk away. But in terms of what constitutes a hardship, it’s a broad range of difference. Recently, there have been a lot of COVID issues that have caused hardships. Divorce, job relocation, decrease in hours, any number of things that can constitute a hardship. Not all things are going to be creditor documents but sometimes you need to have filed taxes, things like that if you have been making money because they’re going to want a complete set of documents to review. But the big thing that they need to see is that there’s a hardship.
For more information on Real Estate Agents Handling Short Sales In IL, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (312) 313-1033 today.
Find Out How We Can Help!Call Now! (312) 313-1033