Illinois residents who are struggling to keep up with their mortgage payments but are underwater in their mortgages may feel trapped in their homes. They do not want to lose their homes to foreclosure, but they may not see another way out. For some, a short sale may be the answer.
What exactly is a short sale? This is where the bank agrees to accept an offer of sale on a home for less than the current owner’s loan amount. Say one’s home loan totals $300,000 but the current market value of the home is only $250,000. The owner places the house for sale and receives an offer at $250,000 and asks the bank to accept it and write off the difference. If the bank agrees and the sale moves forward, this is called a short sale.
The main benefit to a short sale over a foreclosure is that it allows a person the ability to get out of his or her house while doing less damage to his or her credit score. The biggest disadvantage to going this route is that the debt written off by the bank is taxable, meaning one may face a hefty tax bill come April. In some circumstances, the bank may insist on a deficiency judgment for the remaining amount due on the mortgage once the short sale goes through. One needs to carefully weigh the pros and cons of the short sale process before proceeding with it.
A short sale is just one foreclosure alternative available to those who do not wish to keep their homes. For those who would rather remain in their homes, bankruptcy may be the solution. No matter which route Illinois residents choose, speaking to an attorney before making any significant decisions is wise and could grant clarity on the situation.