Posted: Fri Dec 19, 2008 1:44 am Post subject: Short Sale - Affects Co Borrowers Credit?
I apologize in advance if this was covered somewhere--I tried searching and looking at subject headings for the answer to my question but could not find anything related.
First Question:
If I am successful at closing a short sale through my lender's approval, how does this affect the credit of my wife, who is a co-borrower and joint owner on the deed?
In other words, once banks report the Short Sale to the credit bureaus and it's time to get dinged, who gets dinged? Do we both, or just me--the primary borrower?
Second:
If we both get our credit dinged, does it make sense to try to ask my lender for a novation now so that my wife can avoid having her credit dinged when we finish a Short Sale?
Third:
Since we have two mortgages on the house (1st and 2nd trust), do I have to ask for a novation on the 2nd mortgage as well?
( Neither lender is aware of me wanting to do a Short Sale yet, so if I ask for a novation, they should have no reason to suspect that I am doing this to try to save her credit down the road when I propose a Short Sale... We are also current on our payments)
Does anyone have any advice? Thank you so much! -Steve
A short sale will lower the credit of your wife by 75-100 points. Moreover, you will have to pay the deficient amount to the lender as well. Apart from the lowering of the credit score, I don't think short sale affects much.
The lenders generally prefer refinance over novation. Moreover you can only apply for a short sale if you are delinquent on payments for at least 1 month. If you are delinquent on payments, I don't think that the lender will be ready to refinance the mortgage. As you have said you are current on your payments, you can request for a novation but I don't think the lenders will agree to this.
Posted: Fri Dec 19, 2008 7:08 am Post subject: Co Borrower Credit Ding, Novation vs. Refi
Jerry, thanks for your message!
Since I am insolvent and will be for the foreseeable future (my assets are less than my liabilities), I won't have to pay back any deficiency because it will either be forgiven under Bush's Debt Forgiveness Act of 2007, or because I can claim insolvency through my taxes. Therefore any money that I appear to owe via the 1099-C I receive will become forgiven.
The concern that I have is that I am down $200,000 on the value of my house. Are banks refinancing mortgages that have such an undervalue? I thought you have to have a certain LTV of 80% or better to get refinanced.
And the last I heard, it is cheaper for banks to foreclose and pursue Short Sales than it is to do a Short Refi, where principle on my loan is forgiven in order to make payments more affordable?
Are there any excuses that can be given to the bank to help convince the bank to do a novation over a refinance? Has anyone had any experience with this?
I don't think the lenders will agree to refinance the loan if the property value has fallen by $200,000. A short sale will be a better option in your case because it will affect your credit much lesser than a foreclosure. Moreover as Jerry has mentioned, in order to get approved for a short sale, you will have to be past due on your payments for a month at least.
I don't think the lender will agree to do a novation either. They always prefer refinance in order to transfer the mortgage to someone else.
asgwebsteve
