Charlotte, NC Short Sales Attorney

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Short Sales Attorney | Charlotte, NC

Atternative to Loan Modificiation

Loan modifications are a great way to become current on your mortgage after a temporary hardship. However, they aren’t right for everyone.

When the financial crisis of the 2008 occurred, million dollar mansions became $500,000 properties while predatory lending institutions gave $200,000 loans for $100,000 properties. Families become divorced and your healthy may prevent you from earning the income you are accustomed to.Or maybe the bank has not foreclosed in a number of years and your arrears surpass any equity in the property.

In short, your hardship might not be a temporary one: which leads you to not being able to afford the current property.

Any or all of these reasons might result in your property being ‘under water’, which means that you owe far more than the property is worth. If you owe far more than the property is worth, I often do not suggest working toward a loan modification. The bank will usually want you to reaffirm a debt and sign onto a mortgage for a property worth far less than what you owe. Your payment will be based upon an artificially high value for the property, that does not reflect reality.

In these situations, I may suggest that you pursue a short sale. See the links below for more information

What is a short sale?

In short, a short sale is what happens when you owe more on the property than it is worth and are able to sell the property to someone else. Normally, if you owe more on the property than it is worth, the lender (bank) will not allow you to sell the property. This result is legal because the bank will not release is deed of trust and promissory note (what you owe the bank) unless you completely pay them off.

Accordingly, you normally cannot sell the property for less than what it is worth. The buyer would continue to be responsible for whatever remaining amount is owed to the lender/bank. Through the short sale process, your Attorney is able to negotiate with the lender for approval from that bank or investor to sell your property to someone else (a third party) for less than what is owed to that lender/bank. As such, your $200,000 debt on the house could legally be ‘sold’ to someone else for $150,000.

What situations create the need for a short sale?

If you are not making your mortgage payments, it is not uncommon for a lender to wait three years before initiating foreclosure. Every month that you do not pay is labeled an 'arrear' and added to the amount that you owe on your mortgage. If you add interest, attorney's fees, inspection fees, late penalties, etc etc etc: the amount that you owe on your mortgage can be staggering. It doesn't take long for you to owe substantially more than your property is worth.

Similarly, the real estate collapse of 2008 could have decreased your property value by 50%. I have many millionaire clients that had equity in their property in 2007 and found themselves underwater (owing more than worth) by 2009.

In short, a short sale is what happens when you owe more on the property than it is worth and are able to sell the property to someone else. Normally, if you owe more on the property than it is worth, the lender (bank) will not allow you to sell the property. This result is legal because the bank will not release is deed of trust and promissory note (what you owe the bank) unless you completely pay them off.

Accordingly, you normally cannot sell the property for less than what it is worth. The buyer would continue to be responsible for whatever remaining amount is owed to the lender/bank. Through the short sale process, your Attorney is able to negotiate with the lender for approval from that bank or investor to sell your property to someone else (a third party) for less than what is owed to that lender/bank. As such, your $200,000 debt on the house could legally be ‘sold’ to someone else for $150,000.

Will a loan modification solve my problems?

Despite what the television and other law firms may tell you, principal reduction or the waiver of fees/arrears is very rare in a loan modifications. I see it in maybe 2% of my cases. In the other 98% of my cases, the arrears are added to the back end of the loan. If your property is underwater or it has been a significant amount of time since you made a payment, this could make your new loan modification amount very, very high. The bank may offer you a loan modification, but they will want you to agree to terms that show that you owe far more than your property is worth (and often increase your monthly payment).

Why should I do a short sale?

After the economic crisis of 2008, million dollar properties were worth $600,000. Many of the homebuyers who purchased their homes from 2000-2008 lost 30% of the equity in their home. This has resulted in a current situation where many home buyers owe $100,000 more on their property than it is worth. It is not easy to watch your neighbor’s property be purchased for far, far less than what you owe.

Meanwhile, wages and jobs have been lost. If you owe far more on your property than it is worth or you don’t have the income to make your current payments, a short sale may be an alternative that can keep you from filing bankruptcy, while resulting in many of the same benefits.

Regardless of your reason for not wanting your property, a short sale can allow you to get out from under a bad loan with bad interest rates or high payments. Maybe you need to downsize or maybe your income no longer supports your payment. Maybe you realize that a short sale is the best ‘economic decision’ for your circumstances. If you are severely underwater in your property, continuing to make payments or entering into a loan modification can be counterproductive. You could benefit greatly by short selling the property and moving to a different property.

There are many reasons for a short sale. Compare the market value for your property (what it would sell for on the current market) with what you owe. If you owe far more than what the property is worth, it could easily be argued that you should short sell your property and start anew. You could look at the short sale process as a way of gaining thousands, if not hundreds of thousands of dollars, instantly!

Another important reason to consider a short sale is for the benefit of stalling the foreclosure proceedings.

Why choose a short sale instead of other options?

Bankruptcy and a loan modification will require that you pay back your arrears. If you have not made a payment in 8 months and your monthly payment is $1,200 per month, you owe the mortgage company $9,600 in missed payments. Once you add interest, attorneys' fees, inspection fees and other costs, your arrears (the amount you owe) may be $13,000. If it has been two or three years since you made a payment, this amount could be substantially higher. A chapter 13 bankruptcy will often require that you pay this amount back to the lender. You will make your current payment plus an amount to pay back the arrears. A loan modification will place the arrears on the back end of the loan and require that you execute new paperwork for a loan in a substantially higher amount.

The short sale is the process where the bank may most readily waive incredibly large hunks of what is due. In a short sale, the mortgage company will not care if you owe $600,000 and your property is worth $200,000. They will base their analysis based on current market value of the property. This is the process that can save you tens, hundreds of thousands of dollars in the span of two or three months. A chapter 13 bankruptcy can drag you through that process for 5 years. A loan modification could follow you for 30 years. In a short sale, you can move on with life almost immediately.

Why shouldn’t I do a short sale?

For many borrowers (you), the thought of losing a home they have lived in for 20, 30 years is a thought they cannot consider. Additionally, a poor credit score could make obtaining a new mortgage difficult. A thought should be given to what your options are upon the successful negotiation of the short sale of your property. Many borrowers are forced to rent a property for a period of one or two years before their credit improves enough to qualify for another mortgage (this could be a good thing, as you qualify to buy the property at a lower interest rate and for a lower principal balance).

Ultimately, a short sale may result in you having to rent a different property for a year. To many, this is not ideal.

What are the negatives to a short sale?

Of course, you should understand that you will lose your house in a short sale. For many borrowers, who have poor credit scores, it may be temporarily impossible to obtain another mortgage. Other borrowers refuse to lose the particular property, despite the cost. If you are living on family land or have a particular attachment to the property, a short sale might not be for you.

Additionally, tax consequences may result from a short sale. Mortgage companies often report any forgiven debt through a 1099 to the IRS, which results in Cancellation of Debt Income. In my experience, various exemptions such as insolvency will result in no taxes being paid by the borrower. These are questions for your CPA. In the rare event that you may owe taxes, an argument could be made that you benefited far greater than the small tax liability that you now face. Finally, it may be argued that these taxes will be waived, through a retroactive action by President Obama. For the last few years, he has waived any tax liability through the Mortgage Forgiveness Debt Relief Act. At the time of this writing, a bill has been proposed but not yet approved.

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10550 Independence Pointe Pkwy #302, Matthews, NC 28105

6555 Old Monroe Rd D, Indian Trail, NC 28079

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(704) 743-6387

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harry@harrymarshlaw.com

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