When a home is foreclosed upon, the property is generally sold at auction, and the proceeds of the sale are applied to the balance of the mortgage loan. Any balance remaining on the mortgage after this process is referred to as a deficiency balance, and could be a substantial amount depending on the current balance of the mortgage and the value of the home. The answer to your question of whether or not the mortgage lender will be able to pursue the co-debtor for payment of the deficiency balance greatly depends on the state you live in, as some states allow mortgage lenders to collect on deficiency balances, while other states do not. I highly encourage you to speak with a qualified real-estate attorney before you make any decisions regarding the voluntary surrender of your home so that you will know the potential consequences based on your State's laws.
Rather than allowing the home to go into foreclosure or surrendering the property to the lien holder, you may want to consider selling the home; selling the property should cause you fewer problems than allowing the property to go into foreclosure. If you owe more on the home than the property is worth, you may want to consider a short-sale, in which your mortgage company would accept less than the full balance of the mortgage to settle the debt. You would then sell the home and pay the mortgage company whatever you received, and the mortgage company would forgive the remaining balance. If you are interested in a short sale, the first step is to contact your mortgage lender to find out if this is an option. You can only proceed with a short sale with the consent of the mortgage holder, so it is imperative that you communicate with the lender. For more information about short sales, you can visit http://www.ehow.com/how_8132_short-sale.html. Generally speaking, a short sale is a much less painful process than allowing the property to fall into foreclosure.
If your lender will not allow you to conduct a short sale, you may also want to consider asking the lender about a 'deed in lieu of foreclosure' agreement, which involves surrendering the home to the lender to prevent foreclosure. However, before you proceed with a 'deed in lieu', you should consult with an attorney, because as mentioned previously, the mortgage lender may come after the co-owner for the deficiency balance, even if you are protected by your bankruptcy filing.
It is likely that any foreclosure action or 'deed in lieu' agreement will appear on both your credit reports and those of the co-owner, as you are both liable for the debt. Unfortunately, there is little you can do to prevent this negative information from being reported. A foreclosure is seen as a serious black mark on your credit report, and will likely cause significant damage to your credit rating. However, with time and effort, you and the co-owner should be able to rebuild your credit ratings. For additional information on credit and credit scoring, I encourage you to visit the Bills.com credit help page at http://www.bills.com/credit/. In addition, you should review the foreclosure section of Bills.com at http://www.bills.com/foreclosure/ for information about foreclosure and suggestions on how to prevent it.
Again, I strongly encourage you to speak with a qualified attorney before making any decisions regarding your home, as your state's laws could significantly affect how you decide to resolve this problem. I wish you the best of luck in preventing this foreclosure, or at least at mitigating its impact on you and the co-owner of the property. I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.Bills.com
August 05, 2010
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