The number of homeowners defaulting on their mortgage has declined significantly compared to a few years ago. However, a recent article states that the Chicago area has the lowest amount of home equity and the highest number of households that are underwater for big cities. This points to short sales continuing to be an issue in our area for the foreseeable future. Note though that these trends vary by community with many communities not affected as much.
Short sales can be frustrating for both sellers and buyers. For the homeowner, there are some tips for a successful short sale:
- First, sales prices in the Chicago area have improved in the last 3-4 years. You may be pleasantly surprised to find out that your mortgage is no longer upside down. Speak to a real estate agent to get an opinion of the current market value for your home.
- A short sale will generally not be approved unless there is a legitimate hardship. Make sure that you understand your bank’s criteria for a hardship and the bank’s process and documentation needed to consider a short sale. Most banks will have a section on their website highlighting short sales. Contact your bank’s loan modification area for more information.
- In determining approval for a short sale offer price, the bank is primarily looking at market value not the amount of mortgage owed. Don’t hamper the marketing of your home by insisting on a higher price than the indicated market value.
- A low ball list price may get a quicker offer but the bank is likely to either reject the offer or ask the buyer to raise their offer. Make sure that your agent does a market analysis of your home upfront to support the list price because the bank will be doing their own valuation of the contracted sales price.
- Work with an attorney that is experienced with short sales. This is very important and can make a huge difference in the success of your negotiation with the bank. Short sales are time intensive and not all attorneys are set up to handle them.
- Make sure that you understand where you are in terms of the foreclosure timeline. This may determine how aggressive you need to be as far as pricing and in your communication with the bank. The timeline is different for each state. The normal timeline for Illinois is 210 days from the date of initial filing by the bank (usually after 3 months of default on the mortgage). In recent years, Cook County has taken much longer in the foreclosure process but processing time appears to be shortening.
- Make sure that you provide all the financial documentation requested on a timely basis. Most banks have systemized processes for the short sale process. These systems often have hard deadlines. Timely submission of requested information will prevent interruptions in the short sale process.
- If you are selling a home with a homeowner association fee, try to stay current. Associations have the authority to foreclose on your home independently of the bank holding the loan. The bank will likely not pay delinquent association fees.
- A preliminary title search will help to eliminate some surprises n the short sale process. A title search may reveal multiple or unknown liens. If there are multiple liens (e.g., two mortgages) each lienholder will be negotiated with separately. Federal liens such as IRS tax liens will need to be satisfied or negotiated prior to the short sale. Other liens may include municipal liens (e.g. grass cutting) or mechanical liens.
- Make sure that your agent is negotiating to have the mortgage deficiency waived (if applicable in your state). One of the primary benefits of doing a short sale is the ability to negotiate the handling of the deficiency. You want the resolution in writing.
- Finally, you are selling your home so the normal things still matter. Curb appeal, presentation of your home and marketing still need to be in place.
These are a few tips that should help sell your home. Keep in mind the benefits of the short sale as you patiently wait through the bank’s approval process. If you are in the Chicago area, I would love to work with you in selling or buying your home.