Everyone focuses on the merits of owning a home. But rarely does anyone talk about all the responsibilities and complications it entails. Perhaps the most recurring issue in home ownership is the mortgage.
The mortgage comes in when you borrow a money to buy your home. While you live in the house, it can technically be taken from you if you do not return the borrowed money – a concept called foreclosure.
The foreclosure process costs you money, and it will damage your credit score 7 years (Chapter 13) or 10 years (Chapter 7).
This is why many people facing foreclosure due to their mortgage consider working with their bank to short-sell the home. Essentially, a short-sell is asking the bank to take less money than what’s actually due on the mortgage, basically asking the bank to take a loss for your benefit (and to the bank’s benefit as well, though they don’t always agree with this).
Short Selling Your House
When facing foreclosure, you definitely want to try to do a short-sale first. Short selling occurs when a property owner can sell their property for less than the amount due on their mortgage.
The banks are hesitant to allow a short-sale. While it would make sense in the short-run to do this, in the long-run it would set a bad precedent. Plus banks are in the business of lending money, and they don’t appear to have efficient operations when it comes to anything except this. Even buying REO properties from a bank can be a nightmare.
Hence a bank will only consider a short-sale when the borrower is going through extreme financial distress and are able to prove it to the bank. The decision whether to allow a short-sale is strictly up to the bank.
How to initiate the short sale process
The first step is to contact your lender.
For a short sale to go through, the borrower must go through an extensive application process. This process includes providing information on all major assets, incomes, expenses, and liabilities.
This is often followed by a statement and some follow-up questions from the lender. If the evidence does suggest that the owner is unable to pay the mortgage, the lender may allow a short sale.
Even if a lender allows a short sale, it is essential to make the following considerations:
- The Deficiency: While a lender may allow the borrower to sell a property for less than the mortgaged amount, they may ask the borrower for a small compensation, or they can request the full amount.
- Credit Score: A short sale impacts the borrower’s credit score. This means that it will hinder their chances to borrow later. However, this impact is less than that of a foreclosure.
- Tax: The difference between the amount owed and the amount recovered from a sale is recorded as income by the IRS in North Carolina.
Getting Ready for a Short Sell in North Carolina
For a short sale, the legal requirements and instrumentation applicable in North Carolina must be considered. For property bought with borrowed money, these are:
- A promissory note: a contract signed by the borrower promising to pay back the borrowed amount.
- A deed of trust: called the mortgage that secures the seller’s right to be paid.
In considerations of a short sale, the lien imposed by a deed of trust is listed. Lawyers are essential in handling these legal complications and instrumentation.
Painless Home Buying to the Rescue
If you are eligible for a short sell and wish to pursue it immediately, you need not worry about finding a buyer. Painless Home Buying purchases homes all over North Carolina.
Contact us today!