Posted on: 23rd Aug, 2009 07:54 pm
Hello all, my name is Jacob from Bakersfield, California. I have a problem that I hope someone can help me with. In early 2006, during the real estate peak, my wife and I bought our first home. The only way for us to be approved for a first time home buyers program was for my wife to be the only name on the deed. We agreed to an interest only loan which means that we have no equity in our home and are considerably upside down now. We bought for $235,000 and our house is now estimated to be worth $125,000. The neighborhood in which we live has declined considerably and we wish to move to a more desirable area where we can raise our two young daughters. We have tried to remodify our loan on two occasions only to be denied by the bank because we have always been current on our payments. I have excellent credit and have already been preaproved for a loan that would get my family and I into a much nicer house where we can live for the years to come, not to mention at a significantly decreased monthly payment. If we were to let our house go, would there be any legal ramifications towards my wife and I? What are your thoughts?
Hi jakensteinn,
If both of you are on the mortgage docs, then walking away from the property would severely damage your credit. A foreclosure would lower your credit score by 250 points and you would not be able to purchase a new property for the next 3-4 years. In my opinion, you should contact your lender and negotiate for a short sale. It will lower your credit by 75-100 points and you would be responsible for the balance amount resulting from the sale of the property.
Thanks
If both of you are on the mortgage docs, then walking away from the property would severely damage your credit. A foreclosure would lower your credit score by 250 points and you would not be able to purchase a new property for the next 3-4 years. In my opinion, you should contact your lender and negotiate for a short sale. It will lower your credit by 75-100 points and you would be responsible for the balance amount resulting from the sale of the property.
Thanks
jacob, please don't post future questions more than once. you already have an answer on another forum. postings that appear more than once are confusing. thanks for the cooperation.
My wife is the only person on the deed to our current house. I have no legal rights to the house other than the fact that I reside there with my family. As stated above, we want out in order to get into a home more suitable for the long term. I've been preaproved for a loan but am very cautious on pursuing anything. I know the foreclosure will affect her credit but how about mine? If we were to stop payments on our current home, find something new and place it in my name, would there be any ramifications towards myself or her?
A foreclosure will effect the person whose name is on the mortgage docs. If your name is not on the mortgage docs, then the foreclosure of the property won't effect you. Depending upon your credit and your income, you can apply for a loan.
The easiest way to stay away from forclosures is not to take a loan that you can not afford. Many home owners will take an aggressive loan like the adjustable or the interest only to make the payment more affordable. It's inevitable that at some point and time you will have to pay back the bank instead of treading water with only paying the interest. If you can not afford a payment that is interest and principle then stay away from the loan. If you can not afford the principle and interest payment now, what makes you think that you will be able to afford it later?
-Anthony A
-Anthony A
Hi Jacob,
The mortgage company cannot take any legal action against your wife just because you may purchase a home after the foreclosure on your wife's home. This is because the mortgages will be in different names and so will be the deeds to your homes. But frankly speaking, I don't think your wife should accept a foreclosure without trying for an alternative payment plan. I understand there's no equity in the house but going for a foreclosure isn't good for your wife's credit record (though it won't affect your credit in any way).
By the way, how's your credit and income? Did you check your home affordability? You may do so using How much house can I afford Calculator. It's good that you've been pre-approved but that's not the end of your loan process. There's a lot more to it. Anyway, let's hope that you're getting reasonable rates on the new loan.
Now, coming back to the foreclosure issue, I think your wife should try for a short sale first. This is when you sell your home for less than the balance you owe. A short sale doesn't hit your credit as much as foreclosure (please refer to jameshogg's post above). Since home prices are quite low, you may be able to get a suitable buyer.
However, in a short sale, one has to pay the deficiency (difference between mortgage balance and sale price) which the lender charges in order to recover the outstanding loan balance. But California being an anti-deficiency state and your wife's loan being a purchase mortgage, she may not have to pay the deficiency.
Regards,
Jessica
The mortgage company cannot take any legal action against your wife just because you may purchase a home after the foreclosure on your wife's home. This is because the mortgages will be in different names and so will be the deeds to your homes. But frankly speaking, I don't think your wife should accept a foreclosure without trying for an alternative payment plan. I understand there's no equity in the house but going for a foreclosure isn't good for your wife's credit record (though it won't affect your credit in any way).
By the way, how's your credit and income? Did you check your home affordability? You may do so using How much house can I afford Calculator. It's good that you've been pre-approved but that's not the end of your loan process. There's a lot more to it. Anyway, let's hope that you're getting reasonable rates on the new loan.
Now, coming back to the foreclosure issue, I think your wife should try for a short sale first. This is when you sell your home for less than the balance you owe. A short sale doesn't hit your credit as much as foreclosure (please refer to jameshogg's post above). Since home prices are quite low, you may be able to get a suitable buyer.
However, in a short sale, one has to pay the deficiency (difference between mortgage balance and sale price) which the lender charges in order to recover the outstanding loan balance. But California being an anti-deficiency state and your wife's loan being a purchase mortgage, she may not have to pay the deficiency.
Regards,
Jessica
