The Spouse In A Short Sale May Be Guilty By Association

By
Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

bb and tlwHi Broker Bryant,  I'm in the process of doing a Short Sale on my home. My husband is on the deed but is not on the loan. After we do the Short Sale can he buy us a house using only his credit  for the mortgage?”

Well that’s a good question. The answer is.........I doubt it. At least not for a few years. Since he is not on the loan his credit will not necessarily be affected. However, in the new lender’s eyes, because he is on the Deed, he will be “Guilty by Association”.

This is because the property you did the Short Sale on was your “Marital Home”. He may not have been on the loan but he was an owner. He reaped the benefits of ownership and he will also suffer the consequences of the default.

The default will not show up on his credit but......the new lender will do a check on his last place of residence and his ownership of the property will show up. AND the property will show up as being sold as a short sale. “Paid in full for less than the full amount”.


Time Frame For Getting  A New Mortgage

  • Mortgage program lending guidelines after a short sale depend on the lender. For loans that are federally backed, such as those from the Federal Housing Administration (FHA), you'll have to wait at least two years from the short sale before you regain eligibility. That's as long as you were current on your old home loan. If you weren't, eligibility could take as long as three years. Private lenders, of course, are free to set their own time requirements. Read the full article.


Of course I am NOT a mortgage professional. This information is based on my research.

Maybe some mortgage pros will chime in with their thoughts.

 

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Ambassador
1,960,980
Fernando Herboso - Broker for Maxus Realty Group
Maxus Realty Group - Broker 301-246-0001 - Gaithersburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

The key thing is private investors. .we had a few clients already that were able to secure a mortgage and buy unhurt the "unhurt" spouse's name. .as long as they have the income. .is doable

Jun 12, 2012 10:57 PM #19
Rainmaker
1,527,501
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Good example of guilty by association. Do you really think that lenders will do that thorough of a check in the distant future? I'm sure some will but I'm not confident that they will.

Jun 12, 2012 11:11 PM #20
Rainmaker
2,189,557
Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

You can also have the combination of not on the deed but on the mortgage. I just went around and around with GMAC on this. They didn't want to approve the short sale because the husband wasn't living in the property and wasn't on the deed but the wife was occupying the home, she was on the deed but not on the mortgage. Finally I had to say look you guys, you've got 2 people willing to participate in this short sale so just take it. Since they are divorced, the wife can most likely buy again. That's what my mortgage guy says.

Jun 12, 2012 11:23 PM #21
Rainer
241,927
Justin Dibbs
Pearson Smith Realty - Ashburn, VA
REALTOR® - Ashburn Virginia Homes for Sale

Thanks for the heads up, that's great info to be aware of.  Love the pic.

Jun 12, 2012 11:23 PM #22
Rainmaker
1,020,171
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

It might be possible to get around this by taking the spouse's name off the title prior to doing the short sale.  Put the title into a trust or something else.  That way if the lender starts foreclosing, they may not name the spouse in the lawsuit.  Just my 2 cents.  Still it would need to be disclosed when the question is asked.

Jun 12, 2012 11:40 PM #23
Rainer
140,989
Kathy Fuhriman
Bear River Valley Realty - Tremonton, UT

One of my Fannie Mae REO properties was sold to the wife of a couple who were in the process of having their current home repo'd. Wife made plenty of money on her own to buy a $250k home while her husbands credit was tanked because of the $600k loan he was defaulting on. She was not currently on the deed to that house but it had been her primary residence.

Jun 12, 2012 11:46 PM #24
Rainmaker
104,174
Kathy Dowd
RE/MAX Realty Team, 239 220 4133 - Punta Gorda, FL
Consider it SOLD

WOW...these short sale have more and more questions and no real answers...every day seems like an new job always learning different ways of doing things and new rules to follow...

 

Jun 12, 2012 11:49 PM #25
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Recentyly, I had a mortgage professional tell me that as long as the spouse enjoyed the interest deduction on their tax return that they would be penalized as the "owner."  Of course I talked to another and they said they would qualify the same person.

Jun 13, 2012 12:41 AM #26
Rainer
368,507
Jana Holmstrup
Jana Holmstrup - CEO - Kings Mortgage Services, Inc. - Visalia, CA

Good explanation of this situation that's popping up more and more.  I guess 'guilty by association' does sum it up.  As a Lender, we look at it this way - he lived in the house, benefited from it, and let it go.  Therefore, the waiting periods would apply to him also.  Thanks for a great post!

Jun 13, 2012 12:42 AM #27
Rainer
84,237
Brad Baylor
ERA Coup Agency - Milton, PA

It seems that if this is the case, it wouldn't matter whether his name was on the deed or not.  If they check on his last place of residence, find it was sold as a short sale, and see he was married at the time of the short sale, it would still be guilt by association... no?

Jun 13, 2012 01:48 AM #28
Rainmaker
491,206
Terry McCarley
REMAX Realty Team - Cape Coral FL - Cape Coral, FL
REALTOR, SRES, CDPE - Cape Coral, FL

I have seen people successfully do this but others have failed - we could probably ask this question to various lenders and get different answers.  LOVE the picture!!!  LOL

Jun 13, 2012 01:49 AM #29
Rainer
286,848
Thomas McCombs
Century 21 HomeStar - Akron, OH

Do you think that it might make a difference if the couple filed income taxes individually rather than jointly?

From some of the comments, it sounds like not all lenders do things the same way. (Imagine that!  LOL)

Jun 13, 2012 02:12 AM #30
Rainmaker
303,933
Michael J. O'Connor
Diamond Ridge Realty - Corona, CA
Eastvale - 951-847-4883

I'm with Karen (#1) on this as I had a husband do a short-sale and the wife purchase just over a year later with an FHA loan.  The husband had a true hardship and was current on payments all-the-way-through his short-sale process.  The wife's new home was smaller and the purchase price was less than 1/2 what the husband paid for the first property.  The lender was fully aware of the husband's short-sale and the hardship leading to the earlier short-sale.  

The key to avoiding wearing the lovely suits from your photo above is DISCLOSE!

Jun 13, 2012 02:27 AM #31
Ambassador
671,567
John DL Arendsen
CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS - Leucadia, CA
Crest Backyard Homes "ADU" dealer & Contractor

This question comes up very often. This is great information. Thanks

Jun 13, 2012 06:22 AM #32
Rainmaker
294,264
Bret & Meredith Amon
LIV-Sotheby's International Realty - Breckenridge, CO
Breckenridge, Keystone, Silverthorne, Frisco,

Marriage means partnership right? the good, the bad-- Guilty by association!

Jun 13, 2012 07:17 AM #33
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Broker Bryant,

I suspect you are right.  However, I would check with several different lenders on several different loan programs.  I know Conventional Loans do not look at the Spouse as hard as an FHA loan would.

Jun 13, 2012 09:02 AM #34
Ambassador
4,167,276
Bob Crane
Woodland Management Service / Woodland Real Estate, Keller Williams Fox Cities - Stevens Point, WI
Forestland Experts! 715-204-9671

Hi BB, This seems like kind of a weaselly question, of course the husband should be guilty by association, if he wants his credit to remain pristine, then he needs to step up and pay the mortgage and honor the debts that he married into.

Jun 13, 2012 12:02 PM #35
Rainmaker
837,932
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Bryant, thanks for the heads up.  That fact may vary in states othe than Florida though.

Jun 13, 2012 07:40 PM #36
Rainer
57,945
Wayne Jackson
Lakeshore Realty 208-714-4109 - Hayden, ID
North Idaho Realtor, Serving Coeur dnullAlene and Hayden Lake

Thanks for the post Bryant, great picture. This is one I never considered.

Jun 16, 2012 11:44 AM #37
Rainer
295,383
Paddy Deighan JD PhD
TimeshareLawyers.pro - Vail, CO
Paddy Deighan J.D. Ph.D

it can work for the husband to get a loan...but he will have to shop around and get a good mortgage broker

Jun 22, 2012 02:32 PM #38
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