Short Sale Consulting Should Always be Honest
Honesty is the best policy and for homeowners in a distressed situation they deserve to have straight answers to some very difficult questions. The first part of any Short Sale listing appointment that we go on begins with a consultation to answer any and all questions. Many of the times these homeowners have suffered already so much. They have also in many cases been mislead by others that are in positions of leadership. I have met with homeowners that have had attorneys tell them they have no hope and their only choice is bankruptcy. These attorneys are not even familiar with the North Carolina statutes that protect homeowners. In other cases the homeowners have attempted to deal with the banks and followed their every direction only to be denied a loan modification at the end of a very tiring and strenuous process.
These homeowners are not needing someone to sugar coat any of the news. They need straight answers to hard questions. Many times they just want to be through with the whole process. They are tired and downtrodden.
I met with a homeowner yesterday that unfortunately has waited to long. She already has a hearing date of next week and a foreclosure sale date of the second week in December. Her fiance is not wanting to deal with any of this. She is not prepared for showings, she is in poor health and has a number of issues going on right now. She has attempted a loan modification and after following the banks directions and depleting her savings in order to pay the minimum that they set, they denied the modification. She then spoke with an attorney. His advice was to file bankruptcy. So after listening to her I gave her the file that I had already prepared. In the file was all the paperwork she would need to file an IRS Form 982 to apply for a waiver to the income statement (1099) from the bank on the deficiency of the sale of a primary residence. I also had already given her the two North Carolina statutes explaining that NC is a Non-Recourse state and that the bank could not file for a deficiency judgement. As shown below:
§ 45‐21.38. Deficiency judgments abolished where mortgage represents part of purchase price. In all sales of real property by mortgagees and/or trustees under powers of sale contained in any mortgage or deed of trust executed after February 6, 1933, or where judgment or decree is given for the foreclosure of any mortgage executed after February 6, 1933, to secure to the seller the payment of the balance of the purchase price of real property, the mortgagee or trustee or holder of the notes secured by such mortgage or deed of trust shall not be entitled to a deficiency judgment on account of such mortgage, deed of trust or obligation secured by the same: Provided, said evidence of indebtedness shows upon the face that it is for balance of purchase money for real estate: Provided, further, that when said note or notes are prepared under the direction and supervision of the seller or sellers, he, it, or they shall cause a provision to be inserted in said note disclosing that it is for purchase money of real estate; in default of which the seller or sellers shall be liable to purchaser for any loss which he might sustain by reason of the failure to insert said provisions as
herein set out. (1933, c. 36; 1949, c. 720, s. 3; c. 856; 1961, c. 604; 1967, c. 562, s. 2.)
And
§ 45‐21.38A. Deficiency judgments abolished where mortgage secured by primary residence. (a) As used in this section, the term “nontraditional mortgage loan” means a loan in which all of the
following apply: (1)
(2) (3) (4)
(5)
The borrower is a natural person. The debt is incurred by the borrower primarily for personal, family, or household
purposes. The principal amount of the loan does not exceed the conforming loan size for a single
family dwelling as established from time to time by Fannie Mae. The loan is secured by: (i) a security interest in a manufactured home, as defined in G.S.
143‐145, in the State that is or will be occupied by the borrower as the borrower’s principal dwelling; (ii) a mortgage or deed of trust on real property in the State upon which there is located an existing structure designed principally for occupancy of from one to four families that is or will be occupied by the borrower as the borrower’s principal dwelling; or (iii) a mortgage or deed of trust on real property in the State upon which there is to be constructed using the loan proceeds a structure or structures designed principally for occupancy of from one to four families that, when completed, will be occupied by the borrower as the borrower’s principal dwelling.
The terms of the loan: (i) permit the borrower as a matter of right to defer payment of principal or interest; and (ii) allow or provide for the negative amortization of the loan balance.
(b) the following loans:
(c)
nontraditional mortgage loan. This section does not apply to any of the following:
Except as provided in subdivision (6) of subsection (c) of this section, this section applies only to
(1) (2)
(3) (4)
A loan originated on or after January 1, 2005, that was at the time the loan was originated a rate spread home loan as defined in G.S. 24‐1.1F.
A loan secured by the borrower’s principal dwelling, which loan was modified after January 1, 2005, and became at the time of such modification and as a consequence of such modification a rate spread home loan.
A loan that was a nontraditional mortgage loan at the time the loan was originated. A loan secured by the borrower’s principal dwelling, which loan was modified and became at the time of such modification and as a consequence of such modification a
(1) (2) (3)
(4) (5) (6)
A home equity line of credit as defined in G.S. 45‐81(a). A construction loan as defined in G.S. 24‐10(c).
A reverse mortgage as defined in G.S. 53‐257 that complies with the provisions of Article 21 of Chapter 53 of the General Statutes.
A bridge loan with a term of 12 months or less, such as a loan to purchase a new dwelling where the borrower plans to sell his or her current dwelling within 12 months.
A loan made by a natural person who makes no more than one loan in a 12‐month period and is not in the business of lending.
A loan secured by a subordinate lien on the borrower’s principal dwelling, unless the loan was made contemporaneously with a rate spread home loan or a nontraditional mortgage loan that is subject to the provisions of this section.
In addition to any statutory or common law prohibition against deficiency judgments, the
(d) following shall apply to the foreclosure of mortgages and deeds of trust that secure loans subject to this section:
http://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Chapter_45/GS_45-21.38A.html Page 1 of 2GS_45-21.38A 10/24/11 8:39 PM
(1)
(2)
For mortgages and deeds of trust recorded before January 1, 2010, the holder of the obligation secured by the foreclosed mortgage or deed of trust shall not be entitled to any deficiency judgment against the borrower for any balance owing on such obligation if: (i) the real property encumbered by the lien of the mortgage or deed of trust being foreclosed was sold by a mortgagee or trustee under a power of sale contained in the mortgage or deed of trust; and (ii) the real property sold was, at the time the foreclosure proceeding was commenced, occupied by the borrower as the borrower’s principal dwelling.
For mortgages and deeds of trust recorded on or after January 1, 2010, the holder of the obligation secured by the foreclosed mortgage or deed of trust shall not be entitled to any deficiency judgment against the borrower for any balance owing on such obligation if: (i) the real property encumbered by the lien of the mortgage or deed of trust being foreclosed was sold as a consequence of a judicial proceeding or by a mortgagee or trustee under a power of sale contained in the mortgage or deed of trust; and (ii) the real property sold was, at the time the judicial or foreclosure proceeding was commenced, occupied by the borrower as the borrower’s principal dwelling.
(e) incurred by the borrower in the defense of an action for deficiency if: (i) the borrower prevails in an action brought by the holder of the obligation secured by the foreclosed mortgage or deed of trust to recover a deficiency judgment following the foreclosure of a loan to which this section applies; and (ii) the court rules that the holder of the obligation secured by the foreclosed mortgage or deed of trust is not entitled to a deficiency judgment under the provisions of this section. The amount of attorneys’ fees to be awarded shall be determined without regard to the provisions of the loan documents, the provisions of G.S. 6‐21.2, or any statutory presumption as to the amount of such attorneys’ fees. (2009‐441, s. 1.)
The part most upsetting to the couple was that the attorney never mentioned these two statutes and made it sound like she had to declare bankruptcy to protect herself. Now I am not an attorney, banker, or judge but, I do know short sales and real estate. I make it my business to keep informed on current legislation and what might affect my clients.
To end the meeting she actually looked like she was relieved to have finally had some straight answers and facts given to her and that she said if felt as if a heavy weight was lifted off her shoulders from all the stress and worry she had been carrying. Now that is not to say it is over but now armed with the facts she can face her problems and make an educated decision and look forward to working through this and then rebuilding her life.
