Will short sale hurt spouse's perfect credit?

Real Estate Agent with Realty Direct

Will short sale hurt spouse's perfect credit?
By Benny L. Kass, Inman News

Q. I am upside down on my home, which I purchased before getting married, and my spouse has not been added to the loan. Can I do the following: short sale and default on the balance without wrecking my spouse's perfect credit or declare bankruptcy without wrecking my spouse's credit?

A. You indicate that your wife is not on the loan. Make sure that she is also not on the deed of trust (mortgage) that you signed. Since you bought the house before you got married, I suspect that she is completely out of the loop.

So, yes, you can proceed with either of your alternatives. But before you lose your home, have you tried all available options? Have you explored the various federal and state programs designed to save homes from foreclosure?

Have you tried to modify your payments, although this is still a major problem throughout the country?

And, finally, have you offered to give the property back to your lender? This is known as a deed in lieu - a deed instead of a foreclosure. Many lenders have started accepting deeds-in-lieu. They are beginning to realize that foreclosure costs are expensive, and if they are going to be stuck with the house (because many foreclosures end up with the bank owning the property anyway), why not save the foreclosure and legal expenses and just take back the property?

If you have time, my priority would be to (1) try a short sale. Talk with a good real estate agent in your area and see what can be done; (2) try the deed-in-lieu approach; and (3) then, and only then, file for bankruptcy relief.

When there is a short sale, many lenders are still trying to collect the deficiency. Often, they sell the balance of the note to a collection company for cents on the dollar, and that company begins to pursue you for the difference.

Married readers should understand that when only one spouse signs the promissory note, the lender will require the non-signing spouse to be on the deed of trust. Why? Because to foreclose on the property should the borrower go into default, the lender must be able to sell the property at a foreclosure sale. The deed of trust gives the lender (actually the trustees selected by the lender) the power to sell the house. But if husband and wife own the property together, unless both sign the deed of trust, the property cannot be foreclosed upon.

So, if you are married, either avenue you pursue will impact both of your credit ratings.

Q. I live in a medium-size condominium, and our board just enacted a special assessment. A number of us are opposed to that, and we want to call a special meeting for the purpose of having the assessment rescinded. Is this possible?

A. You first have to look to your association legal documents, which are the declaration and bylaws. Does the board have the right to impose a special assessment? If so, is there a dollar limitation over which the board must get approval of at least a majority of the owners?

Assuming that the board has the absolute authority to pass such an assessment, what can you do? You can ask the board to hold a special meeting for the purpose of throwing it out. You have to comply with the special meeting procedures spelled out in your bylaws.

Source:  Chicago Tribune

For more questions about Short Sales, you can reach us at the following:

BBT Team
Keller Williams Preferred Properties
9701 Apollo Drive, Suite 102
Largo, MD 20774
Phone: 240-737-5024
EFax: 240-296-5024
Email: shortsales@bbtrealestategroup.com Website: BBT Team


Re-Blogged 1 time:

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  1. Dan Edward Phillips 10/04/2010 07:18 AM

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Dan Edward Phillips
Dan Edward Phillips - Eureka, CA
Realtor and Broker/Owner

Good Morning Brian, excellent post, thanks for taking the time to share it.

Sep 27, 2010 03:04 AM #2
Stan Shultz
Prudential Indiana Realty Group - Fishers, IN

A very informative  post.  This is the type of information that will help us when dealing with clients.

Thank You.

Sep 27, 2010 03:11 AM #3
Katherine Fornale

Hi Brian, I have a listing that has this unique situation.  The house being sold is in the wife's name only so the house they are buyeing is in the husband's name.

Sep 27, 2010 03:26 AM #4
Jack Mossman - The Nines Team at Keller Williams in Lodi
The Nines Team at Keller Williams in Lodi - Lodi, CA
The Nines Team in Lodi

Brian ... thank you for putting this on the roll - the information is vital.  The vesting questions, however, may change from state to state.  Sounds as if legal advice may be needed in this scenario.

Oct 04, 2010 07:22 AM #5
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