Is your North Carolina home ownership dream becoming a nightmare? If you have missed some mortgage payments and you are facing foreclosure, schedule a consultation promptly with a North Carolina foreclosure attorney to discuss your legal rights and your long-term interests.
Many North Carolina homeowners now have a mortgage that is “underwater,” which means the balance on a borrower’s mortgage loan exceeds the actual market value of that person’s property.
In 2021, more than 2.25 million U.S. properties were “underwater.” And according to ATTOM Data Solutions, as of 2022, one in every 8,175 housing units in North Carolina is currently in a foreclosure process.
If your own mortgage is now underwater, and if you have missed several payments, your options are foreclosure or a short sale. Either way, you lose the property, but is a short sale or a foreclosure the better option? The answer hinges on your current financial circumstances.
What Are Short Sales?
The main difference between foreclosures and short sales is that in a foreclosure, the lender re-takes ownership of the property and then sells it to recover losses or a third party buys the property at the foreclosure sale, whereas a short sale is part of a negotiation between the borrower and lender to recover as much as possible from the property’s sale to pay on the balance owed to the lender.
Short sales happen when homeowners voluntarily sell their properties for sums that are significantly below what they still owe to mortgage lenders.
For example, someone can sell a residence for $250,000 even though that person still owes $350,000 to a mortgage lender. In short sales, lenders acquire all sale proceeds, and homeowners may still be obligated to pay the difference – $100,000 in this particular example.
What Do Short Sales Require?
Mortgage lenders must consent to short sales. A lender needs to see documentation that shows why the right move is a short sale. Otherwise, a lender may take a substantial loss. Because they may have better alternatives, lenders don’t always approve short sales.
When a lender approves a short sale, a potential buyer negotiates initially with the owner. Then a buyer must seek the lender’s approval for the final sale price. All short sales are voluntary for homeowners, and again, a short sale cannot take place without a lender’s prior consent.
How Do Short Sales Differ From Foreclosures?
Foreclosures, unlike short sales, aren’t voluntary for homeowners and are initiated by mortgage lenders. With a foreclosure, the lender legally takes back the home after a borrower falls behind on his or her mortgage payments or a third party buys the property at the foreclosure sale. As a homeowner, you must try to avoid foreclosure.
Federal law prohibits – in most cases – a mortgage lender from beginning a foreclosure unless the borrower has been delinquent for at least 120 days and sends the borrower a pre-foreclosure letter. That is enough time for the borrower to contact a knowledgeable foreclosure attorney and find an option other than foreclosure.
Can Loss Mitigation Help You?
Loss mitigation may be a good option for many owners/borrowers, and some loss mitigation arrangements allow a homeowner to stay in the home. Loss mitigation happens when a lender works with a borrower to avoid foreclosure. If a borrower is delinquent on mortgage payments, he or she may apply for loss mitigation in the 120 days before the foreclosure process may begin.
What does loss mitigation entail? Lenders may postpone a foreclosure date, revise the terms and conditions of the loan, consent to the property’s short sale, or arrange to have the property deed transferred back to the lender. Lenders are not required to offer loss mitigation, but most lenders offer it because avoiding foreclosure reduces their losses.
What Does a Loss Mitigation Application Require?
Loss mitigation applications usually require you to describe the change in financial circumstances that is preventing you from making your mortgage payments: medical expenses, divorce, death, or other comparable circumstances.
When you apply for loss mitigation, you should explain the change in your financial circumstances and provide evidence, such as a copy of the divorce decree or printouts of the checks you’ve written to pay medical bills.
Short Sale or Foreclosure? Which is Right for You?
There are a number of reasons why a homeowner may want to consider a short sale option. Unlike foreclosures and bankruptcies, which remain on credit reports for years, short sales may not damage anyone’s credit rating.
Moreover – and although there are some restrictions – after your short sale, you might be eligible to purchase another home at once, whereas after a foreclosure, it may be two years to five years or more before you are eligible to buy another home depending on your financial situation.
Short sales may be the best alternative for many owners with underwater mortgages, but is a short sale what’s best for you? A North Carolina foreclosure attorney can review your own financial circumstances to help you decide if the short sale option is the best option you have.
How Will a Foreclosure Lawyer Help?
If you choose the short sale option, you’ll need a foreclosure lawyer’s advice regarding the short sale’s tax implications. Any difference between your sale price and your mortgage balance may be considered taxable income.
Let a North Carolina foreclosure lawyer work with you and with your lender to guide you through the short sale procedure, which can frequently be complicated and confusing. If a short sale isn’t your best alternative, your attorney may recommend options that are better.
What Else Do Homeowners Need to Know About Short Sale Transactions?
Short sale transactions typically take longer than other realty transactions because the consent of the lender is required. Obtaining that consent takes time, and it also generates additional paperwork.
Short-sale homes are usually sold and purchased “as is,” since neither the lender nor the owner has any further reason to invest in the home.
The purchasers of short-sale homes expect to buy a bargain, so they often take a home as it is and won’t ask for extra repair work prior to the closing.
What’s Important for a Homeowner to Remember?
In summary, the leading reasons why so many homeowners who have underwater mortgages decide on a short sale are:
A short sale may help borrowers avoid the negative financial repercussions of foreclosure.
Compared to foreclosures, short sales let owners have more control of the process.
A short sale can let you settle mortgage debt for below the amount you currently owe.
A foreclosure attorney can provide homeowners in North Carolina with personalized foreclosure advice and help those homeowners understand and move through a short sale transaction.
Homeowners – and especially homeowners in North Carolina who are facing an imminent foreclosure – can find out more about short sales and other options for dealing with foreclosure by scheduling a consultation with a foreclosure attorney as quickly as possible.