If you’re dealing with mortgage issues in Illinois, you’ve probably heard about the usual way homes are taken away, called “judicial foreclosure.” But there’s another option that’s not as well-known but may be a better fit – it’s called “consent foreclosure.” This process is guided by the Illinois Mortgage Foreclosure Law (IMFL), provided under the statute 735 ILCS 5/15-1402, and it’s a way for homeowners to give up their property with much less hassle. In this guide, we’ll break down what consent foreclosures are, look at the good and not-so-good parts, and talk about how taxes might come into play.
Understanding Consent Foreclosure
Consent Foreclosure is a legal procedure outlined in the Illinois foreclosure statute that allows homeowners to surrender their property to the lender willingly. In essence, it involves waiving all rights and promising not to fight back in the foreclosure process, providing the lender with a judgment for foreclosure. The critical aspect of this procedure is that the lender, in return, agrees not to pursue a personal deficiency judgment against the homeowner post-foreclosure. This protection is invaluable for homeowners facing financial challenges.
Deficiency Judgments Explained
Before delving into the advantages of Consent Foreclosure, it’s crucial to understand what a deficiency judgment entails. Essentially, it represents the amount a homeowner owes after the bank sells the property and recovers its money through foreclosure. This judgment includes unpaid principal, interest, attorney’s fees, and other miscellaneous costs. The deficiency arises when the property sells at auction for less than the total owed on the foreclosure judgment.
The Foreclosure Auction Process
Following a judgment of foreclosure, the property is set for auction, typically 90 days after the judgment is entered. The bank establishes a minimum bid, and the property is open for public bidding. The difference between the auction sale proceeds and the foreclosure judgment amount constitutes the deficiency. Once confirmed by the court, this deficiency becomes a collectible judgment against the homeowner personally.
The Good Stuff About Consent Foreclosure
- No Extra Money Worries: The best thing about consent foreclosure is that you won’t have to worry about owing more money after you’ve given up your home. With other ways, you might still owe money if your home sells for less than what you owe on your mortgage, but not with consent foreclosure.
- It’s Faster: Consent foreclosures don’t take as long – you can be done with it in around 60 to 90 days. That’s way quicker than the standard judicial foreclosure process which takes a minimum of 7 months. Additionally, a consent foreclosure can be paired with a strategic default to get you out of your property even faster. This was my go-to strategy during the housing crisis, and it still works to this day.
- Less Complicated: There’s way less paperwork and formalities with consent foreclosures. You don’t have to show the bank all your money details, and you won’t have to talk to the bank directly. Your lawyers handle most of it, making things simpler for you. I have found this simplicity is particularly beneficial for high net worth individuals looking to divest unprofitable properties discreetly.
- Immediate Recording: Once the Consent Foreclosure judgment is signed, the property is immediately recorded in the Recorder of Deeds, swiftly relieving homeowners of property-related responsibilities.
- Tax Consequences: In many cases, homeowners completing a Consent Foreclosure and obtaining a deficiency waiver may not receive a 1099C for cancellation of debt, offering potential tax benefits.
Getting Cash for Keys with Consent Foreclosure
Sometimes, when going through a Consent Foreclosure, there’s a chance the bank might also throw in an offer for “Cash for Keys.” This might sound like a good deal, and it can be a helpful option for homeowners looking to move on smoothly.
What’s Cash for Keys? Cash for Keys is like a bonus the bank offers you in exchange for leaving your home in good shape and on time. They want you to hand over the keys without causing any trouble or delays in the process.
How Does it Work? When the bank suggests Cash for Keys, they’re essentially saying, “Hey, we’ll give you some money if you agree to leave the property peacefully.” This could help you cover moving costs or find a new place to stay.
Why Would the Bank Offer This? Banks want the transition to be as smooth as possible. By offering Cash for Keys, they avoid potential issues that might come up if you stay in the property for too long or leave it in bad condition.
Benefits of Cash for Keys:
- Moving Assistance: The extra cash can be a big help in covering moving expenses, making your transition to a new place more manageable.
- Avoiding Issues: Taking the Cash for Keys deal means you leave the property without any fuss, avoiding potential legal problems or delays in the Consent Foreclosure process.
- Incentive to Leave Promptly: The bank wants you out of the property quickly, and offering cash is an incentive for you to hand over the keys on time.
Considerations: While Cash for Keys can be beneficial, it’s essential to weigh the amount offered against your specific situation. Think about your moving costs and whether the offer is fair before making a decision.
Downsides to Consider
While Consent Foreclosure presents various advantages, it’s essential to acknowledge potential downsides. In my experience, one notable downside is the impact on credit, as it is likely to be reported as a completed foreclosure, potentially affecting credit scores more than alternatives like Short Sale or Deed-In-Lieu.
Consent foreclosures in Illinois offer a strategic and efficient means for homeowners to navigate financial challenges and relinquish a property. Understanding the process, its benefits, and potential downsides empowers homeowners to make informed decisions. Seeking counsel from an experienced Illinois foreclosure defense attorney becomes crucial to explore the best financial options tailored to individual situations. If you or a loved one is grappling with mortgage payments, a consultation with our office at 312-493-6912 can provide invaluable insights and guidance.
