5 Questions About Short Sales in North Carolina

English: Sale by owner previous to foreclosure.

English: Sale by owner previous to foreclosure. (Photo credit: Wikipedia)

Homeowners in the Raleigh-Durham area who are facing foreclosure or who are experiencing financial difficulty sometimes consider using a short sale as a way to get out of trouble. But what, exactly, is a short sale? How do short sales help the homeowner? What are the pros and cons? Let’s take a look at some of the most commonly asked questions about short sales in North Carolina.

Question 1. What is a short sale?

When homeowners sell their home, they typically sell for a price that allows them to pay off the remaining mortgage amount and, hopefully, come away with a little extra.

But, when the home isn’t worth as much as the outstanding mortgage, the homebuyer can try to use a short sale. A short sale is so-named because the amount you get in the sale is less than—or short of—the amount you need to pay off your mortgage.

In a short sale, you and your mortgage lender enter into an agreement wherein the lender agrees to take the final sale price of the home in exchange for releasing you from your mortgage even if you still owe more than what the sale recovers.

Question 2. How does a short sale help me?

If your home is worth less than what you owe, you’re essentially trapped in your home. Even if you find a buyer, you’ll still owe on the remainder of the mortgage even after the sale. In other words, you’d have to pay a mortgage on a house you no longer own or live in.

A short sale allows you to sell your home, avoid foreclosure, and satisfy your mortgage at the same time. Even though the house is not worth as much as you owe, the agreement you enter into with the lender allows you to satisfy your loan obligation.

Question 3. What will a short sale do to my credit score?

Almost every action you take with your mortgage can affect your credit, and a short sale is no different. When you and your lender agree to a short sale, the credit reporting agencies consider it a negative because you’re asking the lender to accept a lesser amount than what you originally owed. A short sale will have a significant negative impact on your credit score, and can result in credit score drop of between about 80 to 160 points.

Question 4. What is involved in the short sale process?

No two lenders process short sales in the exact same way, but there are commonalities. To ask your lender if it will agree to a short sale, you’ll have to submit an application or proposal that details your financial situation. You’ll also have to include a hardship letter that states why you cannot pay the current mortgage and how a short sale will help you. If the lender agrees to the sale, you can expect the total process to take at about three months, though this timeframe can differ significantly from case to case.

However, this process isn’t always free of problems. For example, lenders often separate short sale and foreclosure departments, and the two don’t always communicate with each other. This means that in some situations it’s possible for your lender to initiate foreclosure proceedings even after the lender has agreed to a short sale.

Question 5. What if my lender won’t agree to a short sale? What are my options?

According to the North Carolina Bar Association, lenders can expect to receive about 84 percent of a property’s fair market value in net proceeds through a short sale. This is substantially more than the 60 – 70 percent they can expect to receive in a foreclosure. Yet even with these numbers, there seems to be no rhyme or reason why lenders approve some short sales and reject others.

The fact is, lenders are not obligated to agree to a short sale. If a lender believes a short sale is in its best interests, it will usually agree to it. It doesn’t care what is in your best interests. In fact, in many situations, the short sale is the greater of two evils for the homeowner, and choosing to file for bankruptcy or accept a strategic default is the better choice.

Determining what your legal options are, what is in your best interests, what tax consequences a short sale might have, and what you can do to leave yourself in the best financial and legal position possible is very difficult for most homeowners to do on their own. If you’re considering a short sale in North Carolina, you need to talk to an attorney for legal advice. Only an attorney who has experience negotiating with lenders and evaluating homeowner options can help you determine what your best option is. Your lawyer’s sole concern is to look out for your best interests, and you need legal advice before you make any decision about a short sale.  Feel free to call us at 919-313-4636 for a free consultation regarding options, including short sales, that can help you to avoid foreclosure.

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Jim White
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Jim White helps people and companies facing serious financial injury by bringing and defending lawsuits and representing debtors in bankruptcy. He has successfully taken on banks, large financial institutions and other corporations in “David v. Goliath” cases. You can reach him at 919-246-4676.