The Illinois Consent Foreclosure: An Unusual, But Potent, Option For the Borrower
A consent foreclosure is, by definition, an agreed-to foreclosure. This option, if offered, should bear serious consideration, as it may offer tax benefits over a short sale
A consent foreclosure is similar to, but much simpler than, a short saleThe Illinois Mortgage Foreclosure Law ("IMFL") governs virtually all real property foreclosures. The IMFL is long, complicated, and a true "trap for the unwary" person who might attempt to challenge a foreclosure. Foreclosure challenges are a much broader topic than any informal legal guide can take on, but there is one unusual provision that can be briefly addressed. A part of the IMFL - specifically 735 ILCS 5/15-1402(a)(2) - allows the bank and the foreclosed party to agree on the foreclosure. Referred to as a "consent foreclosure," the provision has the effect of wiping out a deficiency entirely - much as is done with a short sale. A consent foreclosure is so simple, that the procedure may be all but completed upon filing the answer. 735 ILCS 5/15-1402(a)(3). While the consent foreclosure may be an unusual scenario requiring the agreement of both parties to be effective, it can be a powerful tool for the borrower. Once offered, the Bank can withdraw a consent foreclosure offer only in certain circumstances.
Possible tax advantagesA borrower who is looking to discharge a contingency should bear in mind the potential tax consequences of a short sale. A consent foreclosure may have tax advantages over a short sale, and for that reason is especially attractive with respect to investment property.