North Carolina

Behind on Payments? Selling Your North Carolina House in Mortgage Default

Behind on Payments? Selling Your North Carolina House in Mortgage Default
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What happens when you get behind on mortgage payments? Falling behind on a mortgage loan doesn’t have to mean going into foreclosure. Selling a house in default in North Carolina is one way to get back on track.

This is one of the scariest things that can happen to a homeowner. A home is the largest financial investment that most people will make in their lifetime, and the potential of losing that asset looms large for homeowners who are threatened with foreclosure.

Being proactive will help to keep the home loan intact for as long as possible. Whether this is to allow for the sale of the home or to try to catch up the mortgage payments is up to you. What’s important to know is that there are options for homeowners in default in North Carolina.

Defining mortgage default

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It often starts off small, with a payment that’s just a few days behind. Most homeowners try to hold on as long as possible, making payments when they can as they juggle other financial needs. Default doesn’t just happen with a mortgage loan – it can happen with student loans, credit cards, car payments, or personal loans too.

Once you are behind on payments by at least thirty days, you’re in default.

The timeline on a default sale in North Carolina

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There are federal laws that specify how NC homeowners get protection during default and foreclosure. The timeline for a default sale is based on those federal guidelines.

A homeowner must be at least four months, or 120 days, past due on their mortgage before a mortgage lender can initiate a foreclosure. During those four months, the homeowner retains their right to the property. 

The deadline for a sale before foreclosure in North Carolina isn’t 120 days, though. In fact, the homeowner has even more time. 

Because NC is a non-judicial foreclosure state, the process doesn’t have to go through the court system. The longer timeline for an NC foreclosure means that homeowners have more of a chance to either keep their home or sell their home in default. 

When the mortgage is more than you can afford

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If you tell the mortgage company in NC that the payments are more than you can afford for some reason, then you are eligible for a loan modification. This isn’t guaranteed, and it’s based on the amount of time that you’re behind on your mortgage and the specific terms of your loan. 

Any NC homeowner who is interested in loan modification can call their mortgage holder and request that their terms be modified to help them get through a rough patch. This is called loss mitigation, and homeowners facing hardship can ask for an application. 

Financial trouble is common

Life happens to everyone. Whether it’s from medical bills or a downturn in the economy, for lots of people, the loan payments they originally agreed to can become too much.

To get a loan modification after you have received a notice of default, you’ll likely need to prove financial hardship. This might involve showing that you’ve had to get public assistance, providing statements of unemployment benefits, or even showing the lender your bank statements.

When the mortgage lender agrees to loan modification, it’s because they don’t want ot have to place you on foreclosure notice. Though this is not a benevolent act, it is beneficial if you’re in financial trouble.

North Carolina has a history of helping homeowners get out of pre foreclosure when possible. Look to community and state funded resources to help you avoid foreclosure proceedings.

Mortgage relief programs in NC

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North Carolina has some programs that can help homeowners keep from being foreclosed on. When your mortgage crosses into default, that’s a good time to start to reach out to these programs and find some relief.

It’s important to note that participating in these mortgage relief programs does not exclude the homeowner from selling your home in pre foreclosure. There may be some time constrictions that will delay a sale slightly, depending on the terms of the loan modification. These time constraints aren’t long though, and they don’t materially impede the ability to sell the house.

Housing relief programs in North Carolina support homeowners in financial hardship, and they often require proof of some financial struggle. This could be a job loss, a military transfer, the onset of a disability, the death of a loved one, or any number of other problems that would prevent a homeowner from paying their mortgage payments.

For homeowners in default with missed mortgage payments or who are already in foreclosure, there are three main services in North Carolina to help.

  • State Home Foreclosure Prevention Project
    This free mortgage service in North Carolina offers free financial counseling surrounding mortgage debt. It’s provided by the North Carolina Housing Finance Agency and is available across the state.
    This group can also get you in touch with no cost legal services if your income qualifies. For someone in financial trouble, this can be a godsend when trying to avoid foreclosure. Particularly in the early pre foreclosure process, there are lots of options.
    All over North Carolina, these foreclosure prevention services are provided through HUD-approved housing counseling agencies.
  • Housing Stability Counseling Program
    NeighborWorks America has created a program that offers financial hardship counseling services to North Carolina homeowners who need support in pre foreclosure. These free consultations connect North Carolina homeowners in default with mortgage payment resources and restructuring ideas.
    Not only does this help connect with programs in the state of North Carolina, but it also helps put homeowners in touch with national and local relief groups that can help.
  • North Carolina Homeowners Assistance Fund
    The largest aid organization for homeowners in pre foreclosure in North Carolina is the NC Homeowner Assistance Fund. This $273 million dollar allocation was created to prevent mortgage defaults, foreclosures, mortgage delinquencies, and evictions in the state.
    Created during the pandemic, the Homeowners Assistance Fund is for homeowners whose primary residence is in North Carolina. It covers mobile homes, condos, and single-family homes.
    This fund can help to catch up on late mortgage payments for first and second mortgages. It can also cover other costs like fees and extras that accumulated during a delinquent mortgage period or a mortgage forbearance.
    This fund extends all the way to costs related to home ownership like mortgage insurance, HOA fees, and even property taxes.

Always remember, when you own a house in North Carolina, it’s your property. You have the right to sell a house in default, or in fact to sell your home at any point.

How do you sell a home mortgage default?

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The question of selling a home in pre foreclosure or mortgage default depends first on if the house is worth more than the amount you owe on the mortgage. This piece of information is critical to getting back on track.

A mortgage loan is considered underwater if the property itself is worth less in fair market value than the amount owed to the lender. When the market’s fair price is lower than the home loan, that’s when it becomes problematic.

At that point, the loan might need to be rehabilitated in order to help the homeowner get out from under the debt. Foreclosure is also a possibility for an underwater loan, though its not guaranteed by any means. Mortgage lenders don’t want to foreclose if they can help it, as it costs them more money to take back a house than to keep you in it.

How a short sale works in North Carolina

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When a house is sold for less money than the mortgage balance, it’s called a short sale. In North Carolina, a short sale is a way to keep a house out of the foreclosure process. Per NC housing regulations, you typically have to have the permission of your lender to do a short sale when your house is in default.

The lender has to be on board with a short sale because it necessarily means they’ll be taking less money for the home than what they’re owed. Usually, the funds that come in from the sale of a home go directly to the lender’s attorney and their bank. These funds need to be more than what the owner has been loaned so that the title is free and clear for the new owner.

In a short sale, the lender agrees to take less than what they’re owed. When the payoff comes in from the sale of the home, they mark the note as paid, even though it’s not. Again, this allows the new owners to have the title free and clear.

Steps in a short sale

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If you sell your home with a short sale, it will look much like if you sold your home in a traditional real estate sale. The difference is that you’ll want to communicate with the bank about your situation so that they can approve the short sale in North Carolina.

It starts out with finding someone to buy your home. That might mean reaching out to a cash offer real estate investor, or it might mean going with a real estate agent. Both of these paths are about finding a buyer who will meet you at a price that you can make work.

Once you’ve got a buyer, you’ll accept an offer and work through any contingencies that are baked into the deal. For instance you might need to make repairs or complete a home inspection. Everything works just as it does with a traditional home sale, with one exception – every bit of the proceeds go directly to the lender.

Timeline of North Carolina short sale

How long a short sale takes in North Carolina has to do with the complexity of the transaction.

Though there is nothing inherently different about a short sale in NC than a traditional home sale in that the process involves a mortgage lender being paid in full to sign over the title of the home to a different owner, there are added steps.

The original lender has to review the offer for a short sale. This is true whether the short sale comes as a cash offer from a home investor or if it comes through another lender. When the lender has agreed to do the sale, then the transaction can keep moving forward.

Note that it’s possible for the lender to stipulate that additional actions be taken in order for them to approve the home sale.

Sometimes, a lender will decide that they can make more money by going through with the foreclosure process. This is a tough blow to families who are trying to avoid foreclosure. Continuing to negotiate with potential buyers and the lender can go all the way up until the sheriff’s sale proceeds.

It’s possible to shorten that timeline of a short sale by working with an experienced real estate agent who knows what the process entails in North Carolina. A real estate law firm who has worked on short sales in the past can also be a big benefit here.

A cash buyer or real estate investor who has experience with short sales can also make things go faster and smoother. They’ll know what’s necessary in your county in North Carolina, whether it’s Mecklenburg County or Halifax County or anywhere in between.

Jumping through the additional hoops that are needed to make a short sale work is difficult, but it’s worth it if you’re in pre-foreclosure. Most of all, it’s a matter of negotiating effectively between the mortgage lender, the homeowner, and the potential buyer.

A short sale in North Carolina can take anywhere from a couple of weeks to a couple of months, depending on the details of the transaction.

Why do lenders agree to short sales?

It might seem strange that a mortgage lender would agree to take less than the amount of money they are owed on a home loan. Wouldn’t it make good business sense to go after the full amount that they’re owed?

In a perfect world, the lender would work through loan modifications and help the homeowner figure out their financial difficulty so that they could get current on the loan and pay the full amount. That’s a wonderful theory to think about, but it’s not reality.

A mortgage lender is in the business of lending money, not managing property. Real estate owned by banks does not make money. Sale proceeds from a house that’s sold at a foreclosure auction or a trustee’s sale are always going to be less than the fair market value. Not only that, but through the NC foreclosure process, the asset manager negotionats with a prospective buyer or buyers to get the house off the books as quickly as possible.

The longer a lender owns a property, the less money they make on it. Most lenders are anxious to get on with a trustee’s sale to whichever qualified buyer will give them the highest price at the fastest pace.

A mortgage lender agrees to a short sale, whether it’s through an experienced real estate agent or with a real estate investor. They’re willing to take a loss on the money the homeowner owes them because they know that it’s more likely that they’ll recoup their investment this way than to let foreclosure proceedings go forward.

North Carolina is a non-judicial foreclosure state, so the courts are not necessarily involved in selling your home if it goes into foreclosure.

What do buyers get out of short sales?

When a potential buyer decides to go for short sales, they know what they’re getting into.

Though short sales might sound like a great bargain, and they can be sometimes, people facing foreclosure generally have financial hardships that have prevented them from keeping the property well maintained. A short sale is almost always a fixer upper, leaving the buyer with repair costs and extra expense before the house can be usable.

It’s not just the state of the house that’s at issue. A short sale property often has significant red tape between the buyer, the owner, and the mortgage lender. It’s even possible that a lender will require extra fees and closing costs to be paid by the buyer, rather than being paid by the seller in a traditional real estate transaction.

Though real estate is business, it’s not all cutthroat. Many cash buyers get satisfaction from helping families facing foreclosure to avoid the long lasting setback that it can be for North Carolina families. They still need to make a sale that will work for them financially, but the moral benefit is not invalid.

The edge of the short sale

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Keep in mind that real estate commissions eat into the amount you have left to pay back your lender. This could affect whether the home sale is a short sale at all. Working with a cash buyer means avoiding high closing costs, and that could be the difference in how much debt is left, if any, after the mortgage is paid off.

If I want to sell my home pre foreclosure without having to declare bankruptcy or be responsible for the remaining balance on the loan, the best option is for me to find a buyer with the highest price and the lowest closing costs.

Selling during default and your credit report

Selling your home when the monthly payments are behind won’t affect your credit report any more than any other loan modification.

Damage to your credit report comes primarily from missed payments and charge offs, at least in the realm of mortgage lending in North Carolina.

A short sale will put a hit on your credit report if you sell your home loan, but that’s because of the missed payments, not the sale. What the short sale can do is to stop the clock on any further missed payments.

Credit bureaus don’t drop a credit score until a payment is 30 days or more behind. This means that any payment made after the due date on the loan but before the thirty day mark won’t impact your credit. The problem comes when a mortgage payment gets thirty, sixty, ninety, or more days past due.

A short sale can pause the negative impact on your credit score, preventing the problem from getting worse. It’s much less damaging to have a short sale show up on a credit report because it’s reported as “paid in full” rather than as a charge off. This is a major factor in your ability to get a loan in the future for a home.

Note that it’s the responsibility of the homeowner to check their credit report and make sure that the lender has reported it appropriately. It’s not uncommon for lenders to misreport a home loan that’s been paid off rather than charged off.

This is a great place to engage with a credit counselor to help you figure out what steps you need to take to make the best of the situation.

Making the best out of a mortgage default

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A home going into default does not mean a foreclosure sale is inevitable. A notice of default is relatively early in the foreclosure process, and it represents a great opportunity for homeowners to take control back of their loan.

A notice of default should be a wake up call and a jolt that spurs you into action. There are so many options for homeowners who want to avoid foreclosure. This could be a short sale, working with mortgage lenders to modify the loan, or getting some financial hardship aid from the State of North Carolina. The bottom line is that foreclosure doesn’t have to be your future.

If you need to sell your home in North Carolina in default, explore what your short sale options are. You might be able to preserve your financial situation in a more positive way than you thought, helping you to take the next step in your life following this bump in the road.

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