Zombie foreclosures have been a problem in Chicago, but over the last year the city has seen zombie properties drop more than 20 percent from 978 a year ago to 783 today. These properties often become eyesores as the weeds grow and the vandals take over.
Zombie foreclosures? That’s when the owner of a foreclosed home leaves only to find out years later that he or she still legally owns the home, the banks never officially foreclosed on these properties. The owner finds that he/she is on the hook for property taxes and other fees, such as fines for not complying with housing codes and ordinances (and even face jail time in some instances if you don’t meet repair deadlines), or the local government may send you a bill for yard maintenance, repairs, trash removal, and/or graffiti scrubbing.
There are even “vampire foreclosures” where the owner still lives in the foreclosed house. The vampire problem is more prevalent than you might think. According to RealtyTrac, 47% of bank-owned homes across the U.S. still have prior owners living in the property.
Dennis Rodkin of Crain’s Chicago Business reports, “As lenders speed up their efforts to clear the foreclosure pipeline, they have kicked occupants out of more than 1,100 Chicago-area homes in the past year, according to a report.
In a typical foreclosure, the bank takes possession of the home and title, then auctions it off to the highest bidder. But when foreclosures soared after the 2008 housing crash, banks had trouble unloading certain properties. So to save on the taxes and other costs associated with seizing a home, the banks never officially foreclosed on these properties. That leaves the former owner with the legal obligation to pay those expenses.
If you are in trouble and feel defeated notify your servicer before you leave the property, it may be possible to work out a plan of action that would be beneficial to both parties. There are many loss mitigation programs. A short sale is one solution.
What should you know before selling your house as a short sale?
• Short Sales Don’t Always Cancel the Remaining Debt on the Mortgage – When a lender approves a short sale, what is the lender agreeing to do? At the very least, the lender is agreeing to remove or release the lien on the property. A seller would have a near impossible task in selling a property without this lien release.
• Is the lender also agreeing to cancel the seller’s obligation to repay the loan in full? – Not necessarily. Some lenders ask sellers to sign new, unsecured promissory notes before approving the short sale. Other lenders, without asking for new promissory notes, reserve their right to collect the deficiency — the remaining balance of the debt. While both judicial and nonjudicial foreclosure processes are available, the majority of foreclosures in Illinois are judicial.. As part of the foreclosure judgment, the lender may obtain a deficiency judgment.
• There is no law that precludes a deficiency judgment following a short sale in Illinois. To avoid a deficiency judgment with a short sale, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement does not contain this waiver, the lender may file a subsequent lawsuit to obtain a deficiency judgment.
• You May Owe Taxes on the Deficiency – If your lender forgives you for a deficiency after a short sale, you may owe taxes on the forgiven amount. That’s because it’s considered income by the IRS, upon which you may owe federal and state income tax. Under the federal Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from your income all or a portion of the amount of forgiven debt in a short sale.
Kelbry Properties LLC is Lake County’s and Mchenry County’s premier real estate solutions company. Since our inception, we have been helping homeowners along with improving communities in each and every city we work in.
Through our extensive knowledge of the business, network of resources, and years of expertise, we are able to assist homeowners with a wide variety of real estate problems. We pride ourselves on our reputation for working one-on-one with each customer to handle their individual situations.
With the ability to directly purchase homes and make cash offers, we can create an extremely fast, and hassle-free transaction.
Call us today at 224-321-5300