Common Problems and Obstacles with Short Sales

When homeowners are behind their mortgage payments, lenders are left with no choice but to serve them a foreclosure notice. While you may have several options at your disposal, the best way about your situation is likely to be a short sale. It is a great way to settle your mortgage debt, while allowing you to avoid foreclosure altogether. However, the short sale process is not as easy as it may seem—you may encounter some problems that may hinder and delay the process. It is best to know about them beforehand so that you are able to overcome or avoid these issues.

Getting Junior Lienholders to Accept the Short Sale Amount

To obtain a clear title for your property following a short sale, it is essential for the principle lender to get releases from all junior lienholders. If there is a tax lien, a judgment lien, a second mortgage, HELOC, or any other lien on the property, it must be signed off by the respective lienholder, along with the first mortgage lender. However, getting all the lienholders to agree on the payoff amount is extremely difficult, as everyone is looking to get more money than offered by the principle lender. This can lead to delays in the process and even drive off potential buyers.

Delays and Errors in Documentation

Another common reason homeowners are unable to close deals on short sales in incomplete or incorrect documentation. This may include the documents not dated and signed properly, missing, or not get drawn up in time. Any problem with documentation automatically puts the process on hold, delaying it for days or even weeks. It is best to get all the required documents in order a few days before the closing deal and have a real estate attorney carefully review them.

Unreasonable Timeline Expectations

Short sales are generally faster than any other real estate transaction, though it can take anywhere from several weeks to a few months. Since its quite rare for a lender to accept the first offer, uninformed sellers and buyers expecting a quick turnaround are likely to get frustrated and give up on the deal before the sale of the property is approved by the lender. But the good thing is that most major banks and reputed lenders have streamlined their process, making it easy for homeowners to easily and quickly acquire approval for a short sale.

Lowball Offers

Most buyers are interested in a short sale because they are looking to strike a ridiculously low offer from the seller. However, banks have investors and shareholders to answer for their investments in distressed properties, and expect to get maximum return. Your lender will likely to outright reject any lowball offers that you may present for approval. That is why you should never submit such offers to the lender to avoid wasting time. Instead, only submit those offers that are closely match to lender’s desired sale price.

Short sales may not be as simple as they may seem like, and involve several legal intricacies that you must be aware about to avoid any potential problems with the process. It is recommended that you work with an experienced and reliable real estate attorney to ensure you are do not make any mistakes and stay on track with your short sale. Contact Covert & Covert, LLP at (630) 717-2783 or online to schedule a free consultation today. We have offices in Schaumburg, Warrenville, and Naperville, Illinois.

Foreclosure and Divorce: What are your Options?

Dealing with a foreclosure while going through a divorce can lead to a number of issues. Generally, couples are seeking answers to questions like: Who will get the house? Who will pay the remaining mortgage debt? The responsibility of debt and the ownership of the house will be determined based on the particular circumstances of your marriage and laws affecting your situation.

Who is Responsible to Pay the Mortgage?

The answer to this question largely depends whether the mortgage loan was taken out before or after the marriage. In most cases, married couples obtain the loan together to title the property jointly. However, in other situations, one spouse signs the mortgage in their own name to take out the loan.

If both spouses have signed the mortgage, they will be equally responsible for the debt. Moreover, they will also be liable for deficiency judgment that the lender may bring following a foreclosure. In case only one spouse signed the mortgage papers, the other spouse will not be liable to repay the debt, or any deficiency judgment after a foreclosure.

Who Keeps the House?

There are generally three possible situations that may arise from this question:

1. When One Spouse wants the House

When one of the spouses wants to keep the house, there are several things they can do. They may apply for a loan modification, refinance the loan in their name alone, or directly assume the mortgage through the essential paperwork. For assuming the mortgage, they will have to show that they are financially stable enough to afford the monthly payments in order to avoid foreclosure. Most mortgage agreements have a due on sales clause, but it may not be enforceable if the house is transferred during a divorce.

2. When Neither Spouse Wants the House

If none of the spouses wants to keep the house, they may have numerous options at their disposal to avoid foreclosure, such as:

Sell the property and settle the debt
If the property value has gone down the market value, you can arrange a short sale after getting approval from the lender
Rent out the house and use the rental income to make the payments
Completing a deed in lieu of foreclosure

3. When Both Spouses Want the House

If both spouses wish to keep or remain in the house, this can create potential problems, ultimately leading to foreclosure. Spouses will have to take the matters to the court that may issue an order to sell the property. This will only lead to raising the cost of the process, as each party will have to pay court and legal fees, and make the situation more difficult.

It can be extremely hard to handle both divorce and foreclosure without any legal guidance. It is recommended that you discuss your case with an experienced foreclosure defense attorney and know what options are available to you. For more information, contact Covert & Covert, LLP at (630) 717-2783 or online to schedule a free consultation today.

Understanding the Role of Hardship Letters in a Short Sale

If you are a homeowner finding it difficult to make regular mortgage payments, you may want to consider a short sale for your home. But for executing a short sale, you need to get approval from your lender. The process can be initiated by writing a hardship letter which comprises of details about your reasons of going for a short sale.

What is a Hardship Letter?

A hardship letter is an essential part of documentation when you are making an application or request for a short sale to your lender. The letter provides the lender a clear picture of your current situation and what circumstances led to your financial difficulties. This letter should have sufficient evidence, such as bank statements, a financial statement, tax returns, pay stubs, and any other documentation that can support your case.

The final decision of your lender is influenced by several factors, aside from what reasons you have presented in your hardship, especially their own financial concerns. However, most government short sale programs and lender programs require homeowners to demonstrate their financial hardship in order to explain their inability to make mortgage payments, and why they think a short sale is the most viable option.

What Constitutes as “Hardship”

Hardship is defined as a situation that is beyond an individual’s control, and results in circumstances where a mortgager is unable to afford mortgage payments. There are several situations that may cause hardship and qualify for a short sale consideration by your lender, including, but not limited to:

Energy-Environmental costs
Excessive obligations
Fraud
Illness of principal mortgagor or a family member
Incarceration
Job relocation
Military Service
Natural disaster
Payment adjustment
Payment dispute
Property problems (construction litigation, roof leaks, etc.)
Reduction in monthly income
Separation or divorce
Servicing problems
Transfer of ownership pending
Unemployment

Important Parts of a Hardship Letter

When writing a hardship letter to your lender, make sure to include the following:

Your complete contact information, such as your address, phone number, loan number, and address of the property you want to short sale (if you are living in a different house)
A request to your lender in a respectful and polite way, asking them to give approval for a short sale of your home
A complete explanation of your current situation and the circumstances leading to the hardship, and also include the timing of the incident
Tell the lender what steps you have taken to cope with your situation
Acknowledge that your attempts have not worked and the only way for you to keep your home from being foreclosed is to go for a short sale
A short paragraph explaining that you have tried your best to make timely payments and that you wanted to keep the property, but due to the circumstances, things have not worked out well for you
A sentence or two for thanking the lender for considering your request

Lastly, make sure to attach all relevant documentation that can support your hardship and the request for a short sale.

The entire process of getting approval for short sale and executing the short sale is complex and riddled with legal hurdles. Contact Covert & Covert, LLP at (630) 717-2783 or online to schedule a free consultation today and let our short sale attorney help with your case.

Common Types of Foreclosure Scams You Should Know About

When going through a foreclosure, it is natural for any homeowner to panic and resort to any solution that allows them to keep their home. You may encounter some people who will label themselves to provide mortgage or foreclosure relief to homeowners in distress. But in reality, they are scam artists with the intention to make profits from your financial misfortune. They will make big promises that they will reduce payments or even pay your mortgage and guarantee to save your home. Some might even go to the lengths of claiming to be working with your mortgage lender.

It is essential that you know about the types of foreclosure scams to keep yourself safe from losing your most valuable assets to con artists and fraudulent companies.

1. Lender Scams

When you receive the foreclosure notice, a lender may contact you and suggest refinancing your mortgage loan with lower payments. The offer will seem very attractive to you because in the beginning you will have to make significantly low payments, as you will be paying the interest amount only. When the term ends, you realize that the actual amount you borrowed is still outstanding in the form of a balloon payment. If you are unable pay off that entire balloon payment, you may have to give up your home to the lender.

2. Equity Skimming

Equity skimming is another common technique that most homeowners fall prey to. In this scam, an individual approaches you claiming to be a buyer. They promise to pay off your mortgage and give you a lump sum amount when your house is sold. The buyer will ask you transfer the property deed to them, move out, and break off any communication with your lender.

The buyer will most likely rent out your home and collect monthly rental payments for several months. During this period, they won’t make any mortgage payments and since you have severed all forms of communications with your lender, they will not be able to inform you about the missing payments. This will allow your lender to foreclose your home, as transferring your property deed to another party does not means that you are relieved of the obligation on your loan.

3. Fraudulent Counseling Agencies

After you have been issued a foreclosure notice, you may start receiving calls from phony counseling agencies that may claim to provide you with ways to save your home. They will ask you to pay exorbitant upfront fees for their ‘valuable’ services. However, in reality, all they do is make a few calls and complete paperwork involved in getting a repayment plan approved from your lender, or may work to organize a short sale. But, all these activities can be easily performed by a homeowner, without incurring any additional costs. These counseling agencies mislead homeowners and keep them from getting real help.

Since homeowners are desperate to keep their property from being foreclosed, scam artists tend to take advantage of their situation. It is recommended that you discuss your case with an experienced foreclosure defense attorney and know what options are available to you. For more information, contact Covert & Covert, LLP at (630) 717-2783 or online to schedule a free consultation today.

What Is a Short Sale Deficiency Judgment and How Can It Be Avoided?

A short sale is a good option for homeowners facing difficulty in paying off their mortgage debts. The lender agrees to take the sale price at which the house is sold, even if it is less than the mortgage amount, allowing the homeowner to avoid foreclosure altogether. However, there are situations where the lender seeks a short sale deficiency judgment against the homeowner several months or years later, leaving them surprised as to why they still have to make mortgage payments after everything has been settled.

What is a Short Sale Deficiency Judgment?

The amount received after a short sale is usually less than the total mortgage debt. This difference between the selling price and the total debt is referred to as deficiency. For example, if you owe your lender $150,000 on the mortgage, but the short sale price of your home is $100,000, the difference of $50,000 is the deficiency.

The lender may pursue a personal judgment against you to recover the deficiency amount after the short sale. Typically, once a deficiency judgment has been made, the lender may collect the outstanding amount from you by levying your bank account, garnishing your wages, or through any other means permissible by law.

How you can avoid a Short Sale Deficiency Judgment

If your lender is seeking a deficiency judgment, there are several ways you can avoid paying back the deficiency, such as:

Make an offer to Settle the Deficiency: Before the short sale, you can make a deal with your lender to settle for a lower amount of deficiency to avoid problems after the transaction has been completed. Since filing for a deficiency judgment and collection of debt is a costly and lengthy process, your lender may agree with your offer to save time, money, and energy. You may even negotiate to pay the deficiency in manageable installments over time.
Waiving off the right to pursue a Deficiency Judgment: When you are working with your lender to get approval for the short sale, you can request them to rescind their right to pursue a deficiency judgment. If they agree to it, make sure to include this provision in the short sale agreement. It must be explicitly stated in the agreement that the transaction fully satisfies the debt amount and the lender revokes their right to seek the deficiency.
Declare Bankruptcy: Another way to avoid a deficiency judgment is to file bankruptcy to reduce or eliminate your debt. You may file Chapter 13 bankruptcy to pay only a portion of the total amount. You may also consider filing Chapter 7 bankruptcy to completely discharge the deficiency.

If your home is on the verge of being foreclosed and you want to negotiate a short sale agreement with your lender, you should hire a foreclosure defense attorney to help you with the process. The attorney will also assist you with negotiating about a short sale deficiency judgment with your lender. Contact Covert & Covert, LLP at (630) 717-2783 or online to schedule a free consultation today. We have offices in Schaumburg, Illinois, Warrenville, and Naperville.