Selling Home Questions/Obstacle

I live in North Carolina.

I'm trying to find out if it will be hard or either the process to sell a hom with a 2nd mortgage that has gone to collection?

I purchased home seven years ago. My mom co-signed on the house (she never lived there).  I'm now currenly married (my husband name is not on the house).  We're wanting to sell our home for a different home for size reasons (now have a family).

My obstacle. I have two mortgages on my house. The main mortgage is fine and current. My 2nd mortgage was with a different company and was sold a few times, it got out of hand who I owed payments to. Long story short, that last mortgage company sent that mtg to collections/charge off status.  That company tried collecting on it & I've made payments, honestly i No longer due.

My question is the process any different to try and sell and home with two mortgages and one in charge off status? Is this something that will come to light during the selling process. My husband nor mom knows the details of this?

I just want a clean slate and more important get my mom name off the house (finance wise).

Help!!

"My question is the process any different to try and sell and home with two mortgages and one in charge off status?"

Well, no -- but you still have to pay off both loans.  The lender's internal accounting process having required it be "charged off" on the books doesn't mean you don't owe the money or that they cannot pursue you for it.

"My husband nor mom knows the details of this?"

Huh?

What matters is what the fair market value of the place is and whether you can cover what's owed on the house when you sell it (and, if you don't have sufficient $$ to pay both, whether the second lender will agree to accept less than what you owe in exchange for releasing its lien).

So normally selling a home.... You put house on the market. Buyer interested, makes offer, get their financing in place. That lender agrees to secure the loan...both mortgages.  Pretty much done deal.

Are you saying that Would  now not include the 2nd mortgage b/c of it's status? Or is the process I'm going to have to go into no different than a seller in foreclosure?

 I'm aware I'm still responsible for the loan.

The second mortgage company probably has recorded its security interest/lien with the court house/county land records. It likely will turn up in a title search. Few buyers will buy with a wart on the title. If someone does make an offer, it will be at a pretty steep discount once they learn of the issue (if they don't withdraw the offer altogether). You can verify what liens exist with a visit to your county court house or wherever the land records are kept.

The reason the second mortgage company has not sought to foreclose is because its security interest is secondary to that of the first mortgage lender and the second company might not receive very much in a foreclosure proceeding and auction, especially given the decline in home prices in the past few years. The first mortgage holder would get paid off first and then there are the associated costs. Then the second mortgage holder gets any crumbs left over. if you have a homestead exemption that gets factored into it as well.

You likely are going to have to resolve this issue with the second mortgage holder and then get a satisfaction of lien to clear this up, if you truly want to sell the place and move. You may be able to settle with the second mortgage holder for less than the total amount owed, as part of a sale, but be sure you get a satisfaction of lien that you can record. Otherwise the wart on the title still exists and will continue to cause you problems.

BTW, this issue likely has dinged both your own and your mom's credit reports as well.

Thanks Kivi.

"That helped alot.BTW, this issue likely has dinged both your and your mom's credit reports as well."

Yes, it truly has and that is my main regret b/c my mom had "PERFECT" credit..as close as you can get to perfect.  So more than just getting a new house. I want to redeem her credit.

I'm afraid there's no undoing the credit rating damage (at least not for 7-10 years), though its impact may be lessened with time.  I'm afraid the obligation that comes with co-signing is acknowledging that you need to make payments if you know the other person won't; that's the only way she could avoid a ding to her credit.

Seeing a lien/mortgage on land records doesn't mean anything (no more than the first mortgage means anything); the party wouldn't be privy to the lender charging off the debt, and there's no obligation for the seller to mention it.  Of course, you don't want to present things as all fine if the place isn't worth enough to sell and cover both mortgages; you'd want to first ask the second lender whether it will approve a short sale and accept less than what's owed if the fair market value of the place will only cover the first mortgage.

If you can sell the home for more than the combined balances of both loans (including arrears), real estate commissions and closing costs, no problem.

If you can't, big problem.

Nobody's buying any house with a second mortgage on it that's in default.

Here's an example.

First mortgage 100,000

Second mortgage 50,000 plus maybe another 5000 by now in interest, fees, and costs because of the delinquency.

If you use a realtor to sell the house, commissions run about 7%.

Closing costs about 2%

You would need to sell the house for about 175,000 to cover everything.

If the house is worth less than 150,000, you're screwed if you can't come up with cash to make up the difference or the second lender will agree to a short sale.

Since you bought the house 7 years ago, before the real estate crash, it's probably worth considerably less than what you owe on it.

DMJ_Raleigh:

I'm aware I'm still responsible for the loan.

So is your Mom. I hope you understand that her credit is probably trashed by now because of your default on the second mortgage.

That's great info Chancey.

But it would be best of course if all the details are devulged to my realtor?

"I'm afraid there's no undoing the credit rating damage (at least not for 7-10 years), though its impact may be lessened with time. "

Unlike my credit, hers isn't terrible b/c again, all her other debts are perfect and she's never been late on anything before. So that helps her out. Selling the house and getting it out of her name, will still help her (credit score) , because her debt to ratio at least goes down tremendously.  Granted she'll still have a negative scar on her credit.

DMJ_Raleigh:

But it would be best of course if all the details are devulged to my realtor?

Why would you even think about not divulging it to a realtor?

It's public record. The realtor will check it anyway. So will the buyer's lender. So will the escrow company. You can't hide that kind of stuff.

My suggestion is that you and your husband bite the bullet and stay put. Get the second mortgage back on track no matter what it takes. Then wait a few years to get a bigger house.

@Adjuster Jack:   Thanks for the break down in numbers. 

"If you use a realtor to sell the house, commissions run about 7%."

Where is this?  I'd never ever agree to that much (I'd rather use one of those flat-fee places and make sure services included X-Y-Z, including MLS listing), but ...  :)

Chancey1:

"If you use a realtor to sell the house, commissions run about 7%."

Where is this?  I'd never ever agree to that much (I'd rather use one of those flat-fee places and make sure services included X-Y-Z, including MLS listing), but ...  :)

"About" 7%.

Could be 6%.

Could be less depending on OP's negotiating power.

And OP is certainly free to use the flat-fee places or sell it on Craigslist.

PS: I wouldn't pay that much to a realtor either.  

DMJ_Raleigh:

I'm trying to find out if it will be hard or either the process to sell a hom with a 2nd mortgage that has gone to collection?

Except when you are in bankruptcy, all that really matters is this: will the home sell for at least the total of ALL liens and encumbrances on the property? If so, then the sale is no different than any other, no matter how many mortgages/liens are on it or what stage of collection it's at, other than bankruptcy. The buyer simply wants all liens/encumbrances cleared off the title at or before closing, whatever those happen to be.

When the liens/encumbrances are more than you can get for the property, that's when the sale will be troublesome.