Since the housing market has taken homeowners on such a roller coaster ride, many have turned to short sales as a way to escape without the damage a foreclosure would bring to their credit rating. The definition of a short sale is when a homeowner can no longer make their mortgage payments, and faced with foreclosure they get their bank to agree to sell their home for less than they own on the loan. This alternative lets the homeowner keep a foreclosure off their credit record and keeps the lender from lo sing as much money on the home loan as they would at a foreclosure auction.
For the third week alone of April, 2009, about 62% of the 125 single-family homes that sold were flagged as distressed properties or short sales. The numbers for condos and townhomes were lower, with 22% of the 122 sales being short sales. The Multiple Listing Service of Northern Illinois puts the number of Chicago single family homes sold as short sales over the past month at one in ten. For Chicago condos, every one in twenty-five sales over the past month was a short sale. Some experts estimate that the percentage is higher because a short sale is listed as such only if the person selling the home or condo agrees to have it marked. In all, they estimate that short sales in Chicago have nearly tripled in the past year.
There are several factors you've probably already heard about that may have contributed to the rise of foreclosures and short sales. Some banks, eager to make loans, accepted inflated appraisals and approved loans for homes that weren't actually worth that amount of money. Once the market deflated and home values started falling, banks were unwilling to refinance. When a homeowner owes more than his or her home is worth, it's often called having an upside-down loan. Single-family homes were often victims more than condos because of the wide variation in styles and locations. For Chicago condos all located in a single high-rise, it's more difficult to inflate an appraisal on one unit or another because you have similar units all together with which to compare.
Also, more Chicago homeowners are suddenly finding themselves unemployed as a result of the shrinking economy or hit with much higher monthly payments due to an adjustable rate mortgage, and a short sale may be a good option as it will keep a foreclosure judgment off your credit record. The short sale will still be noted in your credit history, but it isn't nearly as damaging as a foreclosure. It also means that you won't be evicted relatively quickly as you would in a foreclosure and have a little more time in your home as you find a buyer. But remember too that you will lose any equity you might have built up and will come out of the deal with no money to put down on your next house or condo.
Getting your bank to approve of a short sale may be another matter though, and can sometimes take weeks or even months to go through the proper channels and paperwork. But generally many lenders are willing to approve a short sale because in most cases they will make 50% more than if they foreclose and the house or condo goes up for auction.
You will have to negotiate a price with the bank and find out exactly how low they are willing to go and how much of a hit they are willing to take on their profit. Again, most banks are willing to cooperate because the foreclosure process can also be a lengthy one and involves a huge amount of paperwork, eviction and then the foreclosure auction. Once you do receive approval for a short sale on your home or condo, you have a few choices in terms of listing your home. Some banks may have a separate division and will list the home for you. You can also go with a realtor who can list it on the MLS for more exposure. Or you can opt to sell it yourself, but unless you have some interested buyers already lined up, selling it yourself may take longer and your bank may not allow you an open-ended time frame.
For anyone considering buying a Chicago short sale, the same principals apply as when buying any other property. Always get as much information as possible, including any appraisals, inspections and disclosures if possible. Since the price has been reduced, getting financing should be easier and the seller is always eager to close the deal. Overall, short sales are often a good option for the bank, homeowner and new buyer.