Do I have to disclose that my seller is behind on their mortgage payments?
QUESTION: I am getting ready to list a property, and my seller is three months behind on their mortgage payments. The bank has been sending the seller letters about the delinquency, but so far, the seller has not been served with a notice of foreclosure hearing. Do I have to disclose that the seller is delinquent on their payments to the bank? Is this a situation where I will need to ask the bank for a short sale? Does a short sale have to be disclosed?
ANSWER: You might not need to disclose the delinquency yet, and you should investigate further to see if a short sale is going to be necessary.
The notice of hearing is the official beginning of a foreclosure. Lenders often send other notices and demands for payment when a property owner becomes delinquent, but the notice of hearing for a foreclosure is filed and served just like a lawsuit. This means that the property owner will be served by the sheriff, certified mail with signature receipt required, or other similar methods.
The North Carolina Real Estate Commission has been clear that once a notice of hearing for a foreclosure has been filed, then the foreclosure is a material fact that must be disclosed to prospective buyers. This is because any eventual sale will, in some way, be subject to the court’s oversight.
When a seller is delinquent on payments, but a notice of hearing has not been filed, it is very important to calculate what the seller’s equity is in the property. If the seller has sufficient equity to cover the delinquency, the rest of the outstanding mortgage, and any other liens on the property, then there is no reason to disclose the seller’s payment issues. This will only hinder the seller’s ability to effectively negotiate with potential buyers.
If the seller does not have sufficient equity to cover all their obligations, then that fact in itself is a material fact that must be disclosed unless you have conclusively established that the seller has sufficient assets to cover the shortfall. This is because anytime a party may not be able to perform their contractual obligations, that issue is a material fact.
A short sale is one potential method the seller can use to avoid foreclosure if they do not have enough equity or assets to complete the sale and cover a shortfall in equity. In a short sale, the lender must agree to waive the seller’s shortfall. Once the lender gets involved in this way, it is certainly a material fact that must be disclosed to any potential buyer. And, you will want to attach the Short Sale Addendum (Form 2A14-T) to any purchase contract.
Release Date: 8/13/2026
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