Understanding a Short Sale in Illinois

 Posted on December 26, 2025 in Foreclosure

When people go through tough financial times, some may find it necessary to sell what they own for far less than those assets are worth. When a property is sold for a price that is less than the amount remaining on the mortgage, the transaction is known as a short sale. If you need assistance with a short sale, reach out to a Lake County, IL real estate lawyer today.

At Newland & Newland, LLP, we have decades of legal experience, having helped multiple clients with loan modifications, foreclosure defense, and other sensitive issues. We will advise you of your best course of action during a short sale, keeping your future in mind.

Four Requirements for a Short Sale in 2026

A short sale is often a complex undertaking for several reasons. First, selling a house is almost always complicated. Next, since the sale price in a short sale is less than what the owner owes on his or her mortgage, the remaining amount of the loan must be taken into account. Finally, a short sale can only work if each party involved is on the same page regarding the transaction. The most difficult part of the process is often convincing the lender to allow the sale.

Obtaining a lender’s permission to allow a short sale usually requires four particular items, including:

• A letter of hardship explaining why the borrower defaulted on the mortgage;
• Evidence that the market value of the property is less than the amount remaining on the mortgage plus closing costs;
• Proof that there is a buyer who is not related to the seller and willing to buy the property; and
• Credible evidence indicating that a short sale is the best option.

The third requirement is especially important. A person might try to transfer ownership of the property to a family member in an attempt to avoid foreclosure. However, lenders tend to scrutinize these transactions more closely under the Illinois Fraudulent Transfer Act. 

Even with all the items present, a request for a short sale could still be rejected. However, providing them all will give a borrower in default a better chance of being approved.

What Happens After a Short Sale?

Presuming that the short sale is approved and is completed as intended, the borrower must still contend with the amount remaining on the loan. Under Illinois law, this balance may be taken care of in one of two ways. The mortgage lender could forgive the remaining debt,  which must be reported in the borrower’s tax filings. Alternatively, the lender could file for a deficiency judgment. This judgment allows the lender to collect the balance due through legal means, including wage garnishment and liens on other property that the borrower may own.

A borrower seeking a short sale could include a proposal to have the remaining balance waived with the initial request and hardship letter. It is best to address this concern early in the process to avoid unpleasant surprises down the road.

Frequently Asked Questions About Short Sales

Why Would I Want to Sell My Home for Less than What I Owe?

If a loan modification or filing for Chapter 13 bankruptcy are not viable solutions, you may benefit from a short sale to avoid foreclosure.

Why Should I Avoid Foreclosure if I Am Not Going to Live in My Home Anyway?

Your credit score and credit history are going to incur less damage if you avoid foreclosure. According to the Consumer Financial Protection Bureau, foreclosure information usually remains on your credit report for seven years.

Who Keeps the Proceeds of a Short Sale?

If you sell your home via a short sale, your lender is entitled to the proceeds. You may be required to repay the balance on your mortgage or your lender may forgive the remainder, depending on your circumstances. Your lender must approve a short sale before you finalize this process, so you will be made aware of whether you will be held responsible for your remaining balance or not as you discuss this process with your lender.

Contact a Libertyville, IL Foreclosure Defense Attorney

If you are facing the possibility of foreclosure, contact an experienced Lake County, IL real estate attorney to discuss your options regarding a short sale. Call 847-549-0000 for a free phone consultation at Newland & Newland, LLP today.