When we assist clients considering the purchase of a short sale property in Illinois, we always take the time to walk them through the unique legal and financial risks involved. Short sales appear attractive because of the potentially lower purchase price. However, there are significant legal implications that every buyer must understand before making a commitment.
This type of real estate transaction is more complex than a traditional home sale and often involves additional parties, including the mortgage lender and sometimes multiple lienholders. In Illinois, the foreclosure process is judicial. This means any delay or misstep can impact a buyer’s rights or expose them to unexpected liabilities. That’s why we pay close attention to the Illinois Mortgage Foreclosure Law (IMFL), codified at 735 ILCS 5/15-1101 et seq., to ensure our clients are protected at every step.
Short Sale Approval Is Not Guaranteed
First and foremost, it’s important for buyers to realize that a short sale is subject to lender approval. Even after you and the seller agree to terms, the seller’s lender must approve the sale price because it is less than what is owed on the mortgage. This approval process can be lengthy and unpredictable.
Delays of several weeks or even months are common, and there’s no guarantee of final approval. Our firm advises our clients not to make significant financial moves, such as terminating leases or selling their current home, until the lender’s short sale approval is in writing.
Title Defects And Foreclosure Proceedings Can Create Risk
Another critical consideration is title condition. Many short-sale properties are encumbered by liens, unpaid taxes, or other clouds on the title. Under Illinois law, the seller is not typically required to clear all title issues prior to closing in a short sale. That responsibility may fall on the buyer. This is why we always recommend a full title search and review of any pending foreclosure case in the circuit court.
Under Section 15-1504.5 of the IMFL, certain homeowners may file motions to stay or dismiss foreclosure proceedings. If there’s a pending foreclosure judgment, the property may go to a sheriff’s sale unless the short sale closes first, which creates additional pressure on the timeline.
Short Sale Properties Are Sold “As-Is”
We also remind clients that short-sale properties are sold “as-is.” In many cases, the seller is facing financial distress and may not have maintained the property. Lenders generally refuse to make repairs or give credit. Buyers should invest in a comprehensive inspection and be prepared to accept defects. While Illinois law under the Residential Real Property Disclosure Act (765 ILCS 77/1) requires certain seller disclosures, enforcement can be difficult if the seller is judgment-proof or absent.
Closing Delays Are Common In Short Sale Transactions
Finally, buyers need to account for potential delays at closing. Even if the short sale is approved, final HUD-1 approval by the lender is often required. This last step can cause sudden changes or rescheduling of the closing date. If the property is in active foreclosure, there is always a risk the court proceeds with a sheriff’s sale unless the lender halts the process.
Short sales can offer value, but they carry legal risks that require careful handling. With our legal team’s help, you can proceed with a clearer understanding of your rights and responsibilities under Illinois foreclosure law.
Illinois Short Sale Frequently Asked Questions
Can A Short Sale Be Stopped By A Foreclosure Sale?
Yes, if the lender does not formally approve the short sale in time, the foreclosure process may proceed to a judicial sale. In Illinois, under 735 ILCS 5/15-1507, the court can authorize a sheriff’s sale once a judgment of foreclosure is entered. This risk makes the timing of the transaction especially important.
Are There Risks If I Buy A Short Sale Property With Liens?
Yes. Many short-sale homes have unpaid real estate taxes, second mortgages, or judgment liens. These must be addressed prior to closing. If not resolved, you may acquire title subject to those debts. A full title search is essential to identify and address these issues before purchasing.
Is The Seller Required To Make Repairs In A Short Sale?
No. In most short sales, properties are sold “as-is.” Lenders typically do not pay for repairs or offer credits for damage. Buyers are encouraged to hire a licensed inspector before closing and be prepared for potential out-of-pocket repairs after the purchase.
Can I Use Traditional Financing For A Short Sale Property?
Yes, but your lender must be willing to work within the short sale timeline. Some short sales require quick closings, while others are delayed by months due to lender approval. Make sure your financing terms allow flexibility or consider a preapproval that accounts for timing uncertainty.
Does The Buyer Pay The Seller’s Legal Fees In A Short Sale?
No, but some short sale approval letters include conditions that the buyer must agree to, such as covering certain closing costs. We carefully review every term in the approval letter to protect our clients from unexpected charges.
What If The Seller Files Bankruptcy During A Short Sale?
If the seller files for bankruptcy, the short sale process may pause or terminate depending on the stage of the bankruptcy and court approvals. In Illinois, an automatic stay under federal bankruptcy law can affect the foreclosure case and the seller’s ability to complete the sale.
Is There A Right To Cancel After Short Sale Approval?
In most cases, once the lender approves the short sale and both parties have signed the documents, cancellation rights are limited. Buyers should have legal counsel review the approval letter and sale contract before signing to ensure they understand all terms.
Can A Short Sale Affect My Property Taxes In Illinois?
The short sale price may impact your property’s assessed value in future tax years, but this is not automatic. You may need to appeal your property tax assessment if you believe it is too high based on the purchase price. Consult our real estate attorneys to evaluate your options.
Talk To Our Legal Team Today
At Covert Marrero Covert LLP, we help buyers understand the legal risks of purchasing a short sale in Illinois. Our attorneys stay current on Illinois foreclosure laws and lender practices, ensuring your transaction is handled with care.
If you’re thinking about buying a short-sale property, don’t move forward without qualified legal guidance. Contact our Illinois short-sale attorney at Covert Marrero Covert LLP by calling us at (630) 717-2783 to schedule your initial consultation. With offices in Warrenville, Schaumburg, Naperville, and Joliet, we proudly represent clients across the Chicagoland metro area.