Has your divorce forced you to consider a short sale of your home? As a North Carolina Divorce Attorney for over fourteen years, I have guided many of my clients through the short sale process. If you need to get your name off a mortgage and you owe more than your home is worth, a short sale can be the way to go.
Unfortunately its not always easy, but in the context of a separation or divorce, lenders have been increasingly willing to consider the option to avoid money losing foreclosures. So how can you take advantage of a short sale?
Why Will a Lender Allow a Short Sale During a Divorce?
FIRST UNDERSTAND WHY: Lenders are not being generous by allowing a short sale, they are being practical.
As millions of Americans face the dreaded “upside down” mortgage, lenders have been more open than ever in considering ways to avoid foreclosing, which ultimately winds up in a fire sale on the property. A home that has been “foreclosed” brings less money when the bank sells it. As a result, lenders want to keep you in the home by increasing payment flexibility or allowing you to sell the home for less than you owe.
This is the essence of a short sale. If you owe $180,000 on a mortgage, and the property has dropped in value to the point you could only sell it for $160,000, lenders are more willing than ever to let you sell it for $160,000.00 and walk away from the difference.
So should you consider a short sale? If so, how can we make that happen in a divorce?
5 Steps to Entering a Short Sale Agreement
- YOU MUST BE UNABLE TO PAY. In many cases, lenders will not agree to a short sale unless you are behind in your mortgage payments and unable to pay a shortfall. Requiring you to be behind seems silly, but they want to ensure that you are really in need of a short sale to prevent foreclosure before they take a loss on the mortgage.
Contact your lender to determine all the requirements for a potential short sale before you do anything.
- DISCUSS AND PLAN WITH YOUR DIVORCE ATTORNEY. You may have other options, and there may be negative consequences to a short sale. Discuss your entire case with a Raleigh divorce attorney before you commit to anything. In some cases, your mortgage can be reduced without a sale. In other cases, the parties can negotiate a long period to allow for a refinance or sale.
Special protection is available for members of the armed forces and you may qualify for a North Carolina Foreclosure Prevention Loan. The mortgage may actually be cheaper than the apartment or rental home you would be moving into so there are practical considerations as well. You could have other options so explore them.
- BINDING THE PARTIES TO A SHORT SALE . If a short sale is the best option, and you know what it takes to qualify from your lender, then you will need to bind both parties to the short sale process. This is typically done in a Separation Agreement and Property Settlement or Partial Property Settlement if both parties agree to a short sale.
A full Agreement settles all of your marital claims, and a partial Agreement can bind the parties to the short sale quickly if more time is needed to negotiate or litigate the other marital claims.
If one party will not agree and a short sale is truly the only or the best option, then a court may order the parties to cooperate with a short sale. The key is to bind both parties to the process so neither can back out or attempt to black mail the other when an acceptable offer is received. Other issues should also be addressed such as as who will live in the home prior to sale, who will maintain it, who will pay expenses, and other details for the marketing and sale process.
The consequences from an eventual short sale will need to be addressed in any complete settlement as well as discussed below. Your attorney will guide you through your options and ensure your bases are covered.
- MUST HAVE A BUYER. Your lender will not be excited about the prospect of a short sale until you actually have a binding offer from a buyer. Otherwise a short sale is just an idea.
The key is to have both parties (Husband and Wife) legally bound to the process of the short sale before the process goes too far and your credit and financial position can be protected as much as possible.
- CONSEQUENCES OF SHORT SALE. As you will learn from your divorce attorney, there are negative consequences to a short sale that you may not have considered.
As a Raleigh Divorce Attorney, I do not give tax advice, you need to seek such advice from your CPA. The key issue to understand is that there are potential tax consequences to short sales that you need to consider before binding yourself to the process. Your credit will also be affected negatively by a short sale, but probably not as negatively as a foreclosure.
It is also essential to ensure that the lender waives any rights to the deficiency. In other words, the difference in what they were paid from the sale and your mortgage balance. It is normally a part of the deal with short sales, but you must make certain. Your closing attorney and divorce attorney should assist you in determining if you will not be facing a deficiency claim.
Getting out from under an upside down mortgage can be a great thing. Your credit will be damaged, but the damage is normally less than a foreclosure would create. Plus you will no longer have the mortgage affecting your debt to income ratio which is so important in the credit world.
Schedule a Consultation with a Raleigh Divorce Attorney about Short Selling Your Home
If you are facing a separation or divorce and need to take advantage of a short sale, you need to consult an experienced divorce lawyer and a quality real estate professional. Its the best way to ensure your fresh start both financially and emotionally. Contact our Raleigh Law Firm by calling the number or completing the form below.
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