The Spouse In A Short Sale May Be Guilty By Association

We received this question recently:

“Hi 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. Run this by your mortgage professional.

Upcoming webinar:

Times are getting tough again for many agents. Right now there are countless short sale and distressed property "experts" out there competing for only a handful of listings. On this one time, Live webinar, Mike Linkenauger of the Short Sale Specialist Network and Bryant Tutas of Short Sale Superstars will discuss and SHOW YOU, step by step, how to generate real estate leads consistently and easily through blogging and search engine optimization. Mike has directly generated over 170,000 real estate leads online over the last few years alone! Don't miss this chance to discuss blogging, online lead generation and how to get a greater share of the limited number of listings out there right now with both Mike and Bryant! At the end, they will answer any questions you may have. It will last approximately 45 minutes and is a one time event.

Bryant Tutas (Short Sale Superstars / Tutas Towne Realty)

Well this is my first time posting here, but I am a constant follower and think that this is a PHENOMENAL site.
Really great info and its nice to know that fellow Agents/Brokers can bump ideas off each other to not only become more educated, but also to get these deals closed for their clients who are trusting them with their future well being... I am an Illinois Broker and it might be a State to state type scenario, but I am not too sure it is.
Reason being, I have also closed actually 3 Short sales that the spouse, even though on the deed at the time, was able to purchase. This also was both during the short sale process and after the deal had closed. The reason I do not think it could be state to state is because 2 of the spouses / buyers, purchased FHA and FHA guidelines do not go state by state correct?
Either way, this is just what scenarios I have been through and closed, so I hope this helps in some way.
Realistically, my suggestion would be to have the spouse that is not on the loan, just quit-claim the deed to the spouse/borrower on the note and have it filed ASAP before it closes.
That should clear it up and eliminate the scenario all together, hopefully this would not affect the short sale paperwork already submitted, because typically what I have seen and been through, the lenders do not require paperwork from anyone that is not a borrower on the loan for the property.
Good luck!

You need to be a member of Short Sale Superstars to add comments!

Join Short Sale Superstars

Comments

Tara Samney May 23, 2013 at 4:53am

I've warned some potential clients of this here in VA after seeing this post before. Oddly, at least 2 of them have told me that they discussed it with their mortgage brokers (buying a house first before the short sale closed on the spouse and was told it was no problem- (not a FHA loan though). I'm dubious, especially when guidelines are constantly changing. I try to avoid those situations as much as possible.
Kevin - Greenville, SC May 10, 2013 at 6:02am

I have heard this as well from Mortgage Brokers.
Bryant Tutas May 10, 2013 at 5:29am

Ho Bill. Glad yo like the network. Wendy and I have put a lot of time and effort into it. There are certainly exceptions to everything when it comes to mortgages. I've had several buyers recently that were denied financing over this. And I have had several sellers have no issue at all.

There are many factors that go into getting a mortgage approval.

I wrote this article so agents will know when asked the question that the answer is "maybe" not "yes". Work with a reputable lender and have them look at the borrowers complete situation.

This may also not apply to all mortgage programs.
Bill Shouldice May 10, 2013 at 5:03am

Well this is my first time posting here, but I am a constant follower and think that this is a PHENOMENAL site.
Really great info and its nice to know that fellow Agents/Brokers can bump ideas off each other to not only become more educated, but also to get these deals closed for their clients who are trusting them with their future well being... I am an Illinois Broker and it might be a State to state type scenario, but I am not too sure it is.
Reason being, I have also closed actually 3 Short sales that the spouse, even though on the deed at the time, was able to purchase. This also was both during the short sale process and after the deal had closed. The reason I do not think it could be state to state is because 2 of the spouses / buyers, purchased FHA and FHA guidelines do not go state by state correct?
Either way, this is just what scenarios I have been through and closed, so I hope this helps in some way.
Realistically, my suggestion would be to have the spouse that is not on the loan, just quit-claim the deed to the spouse/borrower on the note and have it filed ASAP before it closes.
That should clear it up and eliminate the scenario all together, hopefully this would not affect the short sale paperwork already submitted, because typically what I have seen and been through, the lenders do not require paperwork from anyone that is not a borrower on the loan for the property.
Good luck!
Shawn Wilkinson May 10, 2013 at 3:15am

We have had clients successful in having the spouse buy a home before the SS is complete. I am unsure of people who planned to try this after the fact. There is a lender out there who is willing to overlook about anything.
Minna Reid May 10, 2013 at 2:24am

This "marital home" thing must be a Florida thing. I have seen several short sales by one spouse on mortgage - where the other spouse is unaffected and turns around and buys a house. At least here in CT. In fact I have one now. I am short selling "her" house while he buys "his" house. He got the clear to close yesterday.

This reply was deleted.

Blog