Illinois Foreclosure Timeline

Liens & Mortgages

 1st Mortgages: The primary mortgage or senior lien on the

property.
 2nd Mortgages: A secondary mortgage on the property
which are typically at a ZERO equity position should the
property go into foreclosure.
 HELOC’s: Home Equity Line of Credit. More like a credit
card than a mortgage. The deficiency on the debt will not
be wiped out at foreclosure.
 Deficiency Judgments

 Forgiveness - The majority of the time when a short sale occurs the

 Promissory Note - A lender can issue the borrower a promissory

note which can pay back the amount owed over an extended
period of time say 15-20 years in the form of monthly payments.
 1099 Tax Form - The lender may choose to tax the borrower on the
deficiency amount as a capital gains tax. They basically consider
their loss as your gain, therefore making it taxable. In many
circumstances the client involved in the short sale is in financial
hardship so may be able to claim insolvency. This can eliminate this
obligation but you should consult with a good attorney or tax
professional.
 Cash Contribution - Sometimes the lender may just ask for cash at
the time of closing ranging anywhere from $200-$5,000.
 Mortgage Forgiveness Debt Relief Act of
2007

 Enacted December 20, 2007.

 The Act allows exclusion of income realized as a

result of modification of the terms of the
mortgage, or foreclosure on your principal
residence.
 Solvent vs. Insolvent

Insolvency: The inability to pay one’s debts as they come due.

Even though the total assets of an individual may exceed
their total liabilities, they are insolvent if the assets cannot be
converted into cash to meet the current obligations.
How to determine if you are Insolvent? You must call your
accountant immediately to find out.
Your financial situation when conducting a short sale affects
the manner in which we negotiate with your lender(s). More
importantly it determines the future tax and/or financial
liability you may have after the sale of your home.
 Alternatives To Foreclosure
 Do Nothing

 Payoff the lien(s)

 Reinstatement

 Loan Modification

 Forbearance

 Partial Claim

 Deed In Lieu of Foreclosure

 Bankruptcy

 Short Sale