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Sweet Home Chicago: Foreclosures 101

By Jennifer Lane

Lately, I’ve been contacted frequently by buyers interested in purchasing foreclosed properties. I believe the surge in interest is due to headlines boasting the increase of foreclosures. However, these articles are typically relaying national statistics. Buying foreclosed property in the city of Chicago is a rare opportunity as foreclosures are more infrequent, and if available sold before making it to the secondary market or Multiple Listing Service (MLS).

There are two types of sales when dealing with foreclosed properties: actual foreclosed properties and short-sales.

First, a foreclosed property sale occurs when the bank has already taken possession of the house and the owner has defaulted on their loan. In Chicago, banks have the first opportunity to buy the property. This is another reason foreclosed units are scarce on the MLS. Too, there are attorneys, investors, and large corporations keeping close tabs on public records, bank notes, and foreclosed property to buy themselves for investments as they can often pay less than the property is worth because the bank wants to be free of the note. Too, banks can ask for more or less than the note.

When property is available you have to ask, “Why didn’t the bank keep the property or the ‘players’ in the foreclosed market buy it?” The bank is potentially asking an over-priced amount as they don’t understand market conditions in Chicago, downtown living, and factors affecting particular building’s or unit’s value.

A bank may have looked at previous sales data without understanding what has affected and is now affecting sales in a building. One reason for over-pricing maybe due to a unit’s view, or lack thereof, of which the bank likely is unaware.

Property with sought after views can command $100,000+ more than another unit even if the condo mirrors one another in features and square footage. Banks holding the property can be located anywhere in the country and have no idea the particular unit they think is valued at $400,000 is truly only worth $300,000 as there is another high rise being built or already built right in front of the building of the foreclosed unit. This has an impact as the ‘room with the view’ will be or may already be no more and dramatically decreases the property value!

Of course, banks may not recognize the view issue and do the opposite, which is under-value a property. What is your guess that a property undervalued is going to make it to the public market? You are absolutely correct, zero. If you do have an opportunity to purchase a foreclosed property beware there are no contingencies accepted with your offer other than your mortgage approval. Nope, no inspection or money back to buyer at closing for repairs! Too, it’s often mandatory to apply for the mortgage within two business days.

Secondly, a short sale takes place when an owner has defaulted, but the bank has not taken possession of the property. To obtain a short sale property, you must know of an individual facing foreclosure. Your Realtor can approach the owner and offer to buy the property from the bank for the note’s value, a bit more, or a bit less than the actual note. This saves the owner from foreclosure. In order for this to take place, the owner and prospective buyer (through their Realtor) have to obtain the bank’s consent. The approval is mandatory, so the person in default (delinquent on their mortgage and facing foreclosure) cannot later charge the bank with negligence, misadvising them, or deficiency.

Often buyers offer the seller a bit more than the value of the mortgage to give the owner an incentive to sell it to you rather than the bank taking it. A seller in this situation should simply be thankful someone is offering to buy it and take the offer even if it is for the amount of the note. But, pride or lack of common sense sometimes keep people from taking the offer. Is it better for a seller to sell to a buyer or foreclose with the bank? Absolutely, it’s better to sell to a buyer. Foreclosure is on your credit history forever. (Well, maybe ten years. To me, it would feel like forever.)

At the end of the day, banks appreciate a Realtor taking heed and informing them of market conditions. If you are facing a foreclosure situation, you definitely want to make sure you are working with a real estate professional that will do their due diligence and talk with your bank to allow you to try to list your property for a short sale as opposed to going through a foreclosure. Often, an agreement can be made with the bank to consider an extension on the delinquent note before taking the property and evicting you. As always, call or email me for more information. I am more than willing to connect your with the appropriate trusted professionals pertinent to work with you through your particular situation.
About Jennifer Lane:
Jennifer brings a business approach to real estate. She studied business in college and worked in major corporations having exposure to every aspect of a company from purchasing and marketing to design, production, selling and everything in between. She obtained a real estate license for personal use to buy, remodel, and sell. It wasn’t long after using the knowledge for herself and investors that she realized she enjoyed real estate and could make it her career. She always wanted to own and run her own company and real estate became the answer. Yes, she runs her own company as Keller Williams allows her to operate her business and work with her clients as she sees fit, all under a Realtor’s® code of ethics, of course. She can market Jennifer M. Lane or her practice in anyway she wishes, so you are empowered with information she compiled to aide your search. Every piece of material you are given is created from her experience, research, and knowledge.

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