Short sale transactions are complex. Although no specific Illinois law addresses short sales, a number of Illinois laws apply to the transaction. The short sale seller is in a distressed position and faces perils from all sides – lack of funds, house under water, and impending foreclosure. The short sale seller must, with the assistance of the purchaser’s team of real estate professionals, make a number of strategic decisions throughout the sale process.
The Listing Process
Chicagoland short sale sellers need to find a real estate broker experienced with the short sale process. Short sales have their own quirks and customs and a “green” real estate agent can make errors fatal to the success of the transaction. Finding a licensed Illinois real estate agent familiar with the property location, whether it is in Chicago or the suburbs, is important. A short seller needs to work with a team of professionals to determine first if a short sale is even feasible. A short sale started when a property owner is too far into the foreclosure process or one where the seller is not yet in arrears on a loan will likely be unsuccessful. Each lender has different short sale criteria and a seller, along with the seller’s advisers, must research the process with the lender’s loss mitigation department.
The Short Sale Package
Once the seller has listed the real estate, the seller needs to begin work on the “short sale package”. This is a batch of information, financial statements, questionnaires, paystubs, hardship letters, and other information required by the bank so that it can make its decision to approve or disapprove a short sale. Each bank has different requirements. In the end, the bank is trying to determine the probability of the bank ever receiving the amount it is due from the seller.
The Contract
Once the short sale seller has an interested buyer, the transaction to sell should be embodied in a contract. A seller must consider an offer based on not just purchase price, but also the costs of the sale, such as tax prorations, closing cost credits, and repair requests, and also the ability of the buyer to purchase, such as home sale or mortgage contingencies. After a contract is accepted, it must be submitted to the short sale lender or lenders for their approval. Many short sale buyers resist the notion of proceeding with attorney review, inspection, or appraisals until the short sale is approved by the lenders. Short sale sellers are best served if the short sale buyer completes these steps early in the process. There is no good reason for the seller to allow the delay of these steps only to find out after lender approval that the buyer does not wish to proceed with the transaction.
The Approval
After dealing with a short sale negotiator, the short sale seller will receive the lender’s decision. If the lender approves the transaction, the lender will deliver an approval letter to the seller indicating all of the conditions that must be met in order to finalize the closing of the transaction. A short seller should have the assistance of an attorney to review the approval letter which often contains provisions that affect the seller after the transaction, such as the lender’s requirements related to any deficiency.
The Closing
As the entire process winds to a close, the short sale seller should be accompanied at the closing by an attorney. The typical seller needs an attorney at a standard closing to understand the complexities of the transaction and to handle any problems that may arise. During a short sale closing, there is a title company, a buyer, the buyer’s lender, and one or more of the seller’s lenders participating and none of their interests are the same as the seller’s interest. Only an experienced real estate professional can navigate the issues affecting the buyer and offer advice on how the seller can be best protected.
The decision to engage in a short sale transaction is not one that should be made without much research and consideration. The relief obtained upon successful completion of a sale can quickly become a nightmare. With a competent and experienced team, a short sale purchaser can reduce the risks a seller faces in a distressed property purchase.
Short sale sellers are invited to contact us (773-399-1122) to determine if we might be a match for an engagement to represent them in a short sale purchase.
