Foreclosures are at an all time high in the nation and Illinois foreclosures, especially cook county foreclosures, seem to be higher than in most parts of the country. Studies indicate that 40 percent of the sales in Cook County are short sales. Although studies vary, the truth of the matter is that when it comes to foreclosures, Illinois ranks up there.
Those who live in Illinois should know the law as it effects them with regard to foreclosure. They also need to know about federal laws foreclosure related. The Mortgage Debt Forgiveness Act is one federal tax law that eliminates the need to pay tax on the deficit (the difference between what the property sold for and what is due on the loan) as long as this is your primary residence. Illinois foreclosures do not seek out a deficiency judgment when a short sale is negotiated. In Illinois, foreclosure has to go through the judicial process, which can take a while. So when you are having a hard time paying your mortgage, you may want to know which is the best option for you – modifying the loan, going into foreclosure or going through the short sale?
The Modification
A modification is the way to go if you want to hang onto your house. Obviously, the other two options will only allow you to hang onto the property for a certain period of time – until the short sale is complete or the eviction takes place. There are several home modification programs out there, but generally most everyone qualifies for one of them. You apply for this through the bank and usually have to provide ample paperwork to substantiate any claims. You should have a hardship as to why you cannot afford to pay your mortgage. The bank will then lower the rate of interest and add a term extension to the loan. Some people who are doing this get a substantial reduction in the amount they pay every month that enables them to keep their homes.
Pros of Illinois Home Modification
You get to stay in your home You get your mortgage payment reduced
Cons of Illinois Home ModificationYour credit is sunk You have just increased the amount of money that you owe on a property that has depreciated in value – you are taking a big gamble You have to deal with the stress and frustration from the bank You are probably going to move or lose your home anyway
Face it, if you are struggling so hard to keep your home, chances are that things are not going to get much better and you are going to toss in the towel. Although when you do, the tax laws might be different and you might actually owe on the deficit. Or, the state of Illinois may decide to pursue deficiency judgments. If you are really struggling and owe more on the property than it is worth, get out now. The choice is between foreclosure or short sale.
The Short Sale In Illinois
The short sale requires you to list the property with a real estate agent who will then sell it but for current market value. This can be a big loss – one woman in Tinley Park sold her condo for $50,000 which was the going market price when she owed $120,000 on the property that she bought at $135,000. The real estate agent then procured a buyer and negotiated the short sale with the bank. The result was that she got out of the property and no longer owes on the original mortgage note.
Pros of Short Sale Illinois
You get to get out as soon as possible and move on with your life You do not have to deal with the bank – the realtor takes care of this and even provides a free lawyer You do not have to worry about the state of Illinois coming after you with a deficiency judgment You do not have to worry about paying taxes on the 1099C you will receive as long as this is your primary residence or you are insolvent at the time of the sale. You do not have to pay the realtor commission or legal fees
Cons of Short Sale Illinois
Gives you the least amount of time in the house – you generally have to get out at closing You cannot sell to friends, family or people with whom you are in, for lack of a better word, cahoots Your credit is sunk (but not as bad as a foreclosure)
The Foreclosure Illinois
When you go into foreclosure in Illinois, the bank has to first serve you with legal notice (by the sheriff) that they are beginning a foreclosure suit against you. A foreclosure suit is like a lawsuit in that the bank is bascially suing you for not fulfilling your obligation when you signed the mortgage papers. However, the laws in Illinois prohibit the bank from threatening anything that they cannot, by law, do. You will be called in for a hearing or can request a mediation. This date is 90 days after the date on the notice. After an order of foreclosure is issued, you have 7 months to make good on the debt. After that, they issue the foreclosure judgment and then the bank auctions the property. If you are still in the house, the sheriff will come to evict you.
It takes about 2 years from the time the person stops paying their mortgage to the time they get tossed out from the sheriff if they go this route. Those who go this route will still not have to pay taxes nor incur a deficiency judgment under the current laws. This can be the answer for someone who wants to hang in there as long as possible and perhaps save some money.
Pros of Foreclosure Illinois
You can stay in the house for about 2 years without paying a dime – not even your taxes as they are often covered by the bank as they do not usually allow the property to go to the county You can save money and plan for the future You can hope that congress passes some sort of program that will allow you to save your home
Cons of Foreclosure Illinois
You have no idea what the tax laws and other laws regulating foreclosure will be in 2 years – you are obligated to a debt legally and this only extends that legal obligation and forestalls the inevitable Your credit is shot (really bad – comparable to a bankruptcy)
So, as you can see, there are various options out there and each will effect you in a different way. For those who want to get out now and take advantage of the current mortgage debt forgiveness laws when it comes to foreclosures in Illinois, they can do so with a short sale. Those who want to brave it out for more time in their home and save money can go through foreclosure in Illinois. And those who want to save their homes can find relief with Illinois home loan modifications.