A few weeks ago I went downstate to visit my sister and her family in Ottowa, Illinois. When my brother-in-law and I went fishing on the river, he decided to give me some free real estate investment advice. “What you should really do,” he said, with the air of someone about to impart deep wisdom, “is find a house that is selling for less than it is worth. Then you can sell it for what it’s actually worth.”

Now, I responded politely; it was his boat, after all. But we both know that is Real Estate Investing 101. When he said that was his idea behind trying to buy a short sale, though, I couldn’t help but give him a piece of my mind.

Buying a short sale can be potentially profitable, but it is also challenging, sometimes frustrating, and even possibly very risky. When looking for how to successfully buy a short sale—especially here in Illinois—you have to be aware of the process and the potential pitfalls. Otherwise, you could very easily fall into a money pit.

Understanding How to Buy Short Sales in Illinois

A short sale is when a homeowner makes an agreement with their mortgage lender to sell their house for less than what is owed. The homeowner doesn’t usually get a penny out of the deal, but they also sidestep the foreclosure process. The lender agrees to take what they can out of the deal because foreclosing on the property can be costly on their side, too.

The lender holds a lot of cards here, though. It ultimately gets to choose whether or not to accept a short sale offer. And they know the market as well as you. They know the reasons why the sale is happening. So, you might now be able to strike the lowball deal you hope for.

But if you’re set on trying it, like my brother-in-law, here’s what you need to know about the process of buying a short sale here in Illinois.

1. Find a property

This isn’t always easy. But if you are looking through listings and see a house that seems that it is listed way lower than going market prices, the seller might be trying to attract a short sale buyer. You have to contact the distressed homeowner to find out.

Be cautious, though. Often, Illinois homeowners who are hoping for a short sale, list their house before they even have permission from the bank—and it’s the bank that will ultimately set the sale price. That means you will be in for a lengthy negotiation and might end up with a final price point that leaves you with little or no ROI.

2. Research the house. The most important thing you can do is research. Evaluate the property, do your due diligence on unpaid back taxes, liens, and more. Estimate what the property will be worth after you fix it up.

It’s easy to get caught up in the weeds here. Expect to visit a lot of websites tracking down the property history, and even visiting the county clerk a time or two. In the end, you might or might not get a full picture of what you are buying. But, you have to figure out what to offer the bank anyway. That can be risky.

3. Work with the seller. The seller has to make the case to the lender that they cannot pay off the rest of the mortgage. It’s important to know that the seller can’t make any money off of this transaction; they are just reducing loss. Don’t ever work with a seller that wants a kind of commission for facilitating a short sale. That’s illegal.

Some of the homeowner’s motivations may be that, in Illinois, even after the lender accepts the offer from a short sale buyer, it can still bring legal action, called a deficiency judgment, against the seller. That can bind the seller into making up the difference between the short sale offer price and the amount still left on the mortgage after the sale. As a result, the homeowner may want to try to push your price point higher to avoid this.

4. Make the lender an offer. You have to make an offer that satisfies the lender, reduces their loss, while still saving enough room for you to see some returns. In Illinois, mortgage holders must respond to a written request for approval of a short sale within 90 days of receipt of a qualified offer from a new buyer. That can significantly speed the resolution.

If you get into a back and forth negotiation about price, however, it can also significantly draw out the process. Each new offer lengthens the process. If you don’t offer to overpay from the get-go, expect to invest several months of your time trying to buy the house.

Even after all this, you will still be holding your breath as a short sale buyer. In Illinois, the lender can change the elements of the transaction or accept a new offer right up to the close of escrow date. If the lender declines to pay for any of the fees on this “as is” sale, those costs would end up on your side of the ledger. Or, another buyer could come along and take the house out from under you.

Skip the Illinois Short Sales for a Better Deal

Illinois short sales are only in theory a win-win-win. The seller avoids foreclosure, the lender loses less, and you get a house on which you might be able to turn a profit. That’s good! But, it doesn’t always work out that way. If you end up overpaying, you’ll end up in a situation nearly as bad as the initial seller.

To me, buying a short sale home in Illinois is not the best way to get leads. Short sales take a lot of time and risk-taking, which might have no reward and, frankly, I have a better way to get qualified leads on distressed houses. When I became an independently owned and operated HomeVestors® franchisee, I started to get qualified leads directly from the homeowners themselves before the bank gets involved. They know who to call because the “We Buy Ugly Houses®” company has been a nationally-known and trusted brand since 1996.

So, as I told my brother-in-law between casts, things that seem really easy—like fishing in a river full of fish—aren’t always simple. And, buying Illinois short sale houses is one of them.

If you’re interested in catching something good in Illinois, get in touch about becoming a HomeVestors® franchisee today.

Each franchise office is independently owned and operated.