The term “short sale” can be confusing because some people assume that “short” means quick, meaning the time between advertising the sale of a property and its closing is short. On the contrary, though, short sales are something entirely different.
What is a Short Sale?
In real estate, short sale is a process when a homeowner sells their home for a lower price than is due on their mortgage loan after the homeowner is unable to make the monthly mortgage payment. The buyer is a third party and all proceeds from the sale of the house go to the lender.
Typically, short sales are done as a last-ditch attempt to avoid foreclosure. You must be at least three months behind on your mortgage payment to request a short sale and convince your lender to accept a lower price for your house. Both you and your lender must be onboard for it to happen.
Once you have started a short sale process, there are many ways to stop and regain full ownership of your home.
Short Sale vs. Foreclosure
A short sale is an alternative to foreclosure and buys you more time by selling before you are evicted from the property. It does, however, lower your credit score but is much less upsetting if you were going for a foreclosure.
Short sales are initiated by the homeowner by the consent of the bank or their lending agencies in order to get out of mortgage and prevent foreclosure.
On the other hand, foreclosure is a legal process that is started by the bank or lender when the homeowner is unable to pay their mortgage. No matter how much the house is worth, the lender will seize your home for the non-payment of mortgage and selling it to another buyer to recover the amount owed by the homeowner.
How to Prevent a Short Sale
For a short sale to work, you must convince your banker to let you sell the house to another buyer for an acceptable amount. However, there are some ways you can prevent a short sale of your home.
Not Sending in the Paperwork: To initiate a short sale, you need to follow all the strict guidelines and regulations from the mortgage companies within a strict deadline. If you are negligent or your short sale agreement does not reach the bank in time, the mortgage company will stop your short sale.
Modifying Your Loan: If you are financially distressed, you may be able to qualify for lower monthly payments, under the regulations set by the federal Home Affordable Modification Program (HAMP). This can prevent you from relinquishing your home.
However, this process should be started before you apply for a short sale as these two processes cannot happen side by side. If you move straight towards a short sale and then apply for a loan modification, it will immediately stop your short sale process.
Paying Your Debt: Banks do not want to take your home by force and selling it at a loss; what concerns them is the money that is owed to them. If you are facing a short sale or foreclosure, you should ask your mortgage company to show you different plans that can help you catch up to your missed payments.
For example, you can spread the missed payments balance over the next few months. However, some banks may also require you to give them a lump sum payment to stop the short sale.
Renting Your Home: During times of economic crises, short sales are common if the homeowner is moving to another place for a job or another reason. In this case, a homeowner may not have much time to sell their home and may end up making payments for two homes.
Instead of selling your old house for a short sale, what you can do is rent it out for a monthly payment that is higher than your mortgage payment. This way, you can catch up on your missed balances and stay updated on your mortgage.
A rent-to-own scenario can work even better in your favor. It can help you get a deposit from the renter, which you can use to pay your past due balance. In case the renter changes their mind about buying the property, you do not need to return the deposit.
Buyer Risk: A short sale can be a risky process as you may not be able to find a buyer for the property in time. A short sale can take four months or more since the lender needs to approve the sale and a buyer may not want to wait that long.
Depending on your circumstances, the lender may also not accept a price from a buyer because it is lower than expected. In this case, you may not be able to get a short sale and may be unable to avoid a foreclosure.
Can a Real Estate Attorney Help?
As you can see, a short sale process can be exhausting. Hence, getting a real estate attorney to help you with the process is a good idea.
The main difference between a real estate agent and an attorney is that an attorney does not just have the ability to negotiate the short sale but can also give you advice on the transaction.
In many instances, if the short sale fails, a real estate lawyer can also help represent you during a foreclosure action or help you file for bankruptcy. A real estate attorney can also come in handy if your lender decides to take legal action against you.
Aside from this, a real estate attorney can help you with:
Although your lender may agree to a short sale, it might not release you from debt liability and they may seek a deficiency judgment against you.
A deficiency judgment in a short sale is the difference between the sale price of the home and the total mortgage amount. For example, if you owe $300,000 on a mortgage but the short sale price is $250,000, you may be liable for a deficiency of $50,000.
In this case, the lender may seek a judgment against you to recoup the difference. However, in some cases, some states forbid deficiency judgment after a short sale.
How Much Does a Real Estate Attorney Cost?
Before we give you an estimate of a real estate attorney fee in Illinois, it is important to understand that there is no fixed cost you can expect as the quote varies case by case. In addition, if there are certain complications that may not seem apparent initially, but may arise later on, it can affect the real estate attorney fee.
Having said that, we can agree that the average cost for a standard real estate case can be anywhere between $500 and $1,500. However, there is always the possibility that your attorney charges an hourly fee instead of a fixed rate.
That’s why we recommend that you be very clear about the total cost of the case before you finalize the deal.
If you need legal advice about your short sale, its risks, or the risk of a deficiency judgment, it is a good idea to hire a real estate attorney from Ktenas Law. Our attorneys have full knowledge about legalities relating to real estate and can offer you helpful counsel on any particular situation.
In addition, our attorneys also have excellent negotiation skills. In case you are facing a potential deficiency judgment, our attorneys can help settle the deficiency for a reduced amount or negotiate a waiver for it.
If the lender is successful in getting a deficiency judgment, our lawyers can also guide you on whether you should file for bankruptcy and walk you through the steps.
Contact our experienced real estate attorneys at Ktenas Law today to schedule your FREE consultation.