As the nation falls deeper into recession, many Chicago homeowners are faced with the difficult reality of foreclosure. On April 16, the Sun-Times reported that Chicago-area foreclosures had increased by 69 percent in the first quarter compared to last year.
Throughout the state foreclosure filings were up 79 percent from February to March, leaving Illinois with the fifth-largest foreclosure rate in the nation.
If you’re a Chicago homeowner who is burdened by the current economic crisis, maybe you’ve considered short selling your Chicago home or Chicago condo as an alternative to foreclosure. When someone short sells their home, the mortgage holder agrees to discount the loan, allowing them to sell their home for less than the outstanding mortgage.
But before you decide to short sell your Chicago Home, bear in mind that this option won’t necessarily keep you in the clear financially.
Generally, short selling results in the satisfaction of debt between the homeowner and mortgage holder. However, according to the Wall Street Journal, lately many mortgage companies are going after homeowners for the difference on their outstanding loans.
In addition, mortgage holders are now asking for signed promissory notes in short sales to ensure that the remaining balance of the loan is paid back. While lenders legally have the right to go after homeowners for the difference (in most states), in the past homeowners weren’t affected as much because the economy was stronger. The Wall Street Journal states:
In many states, lenders have always had the right to pursue former homeowners for unpaid mortgage debt. Yet until recently, most borrowers who ran into trouble were able to refinance or sell their homes and pay off their loans. Now, falling home prices are widening the gap between home values and mortgage balances, and the number of homeowners who can’t make their mortgage payments is rising as the economy has weakened.
Whether the mortgage company decides to go after a short seller for the difference depends on the return they are likely to receive versus any costs to pursue the claim.
Another thing to keep in mind is whether or not you have more than one mortgage for your Chicago home. While short selling may cover your first loan, resolving a second loan requires additional/separate negotiations with your lender.