How would a foreclosure in Michigan on a second house affect my husband and myself? The house is only in my name.

Asked by Kbtfred, Michigan Mon Nov 8, 2010

I purchased a house 4 years ago, which is now sitting vacant and needs some repairs. My husband and I purchased a house together 2 years ago, which I also carry the mortgage for, but the house is in both of our names. Does anyone know what the ramifications are for me allowing the vacant house to go into foreclosure? I owe 103K and it's worth about 65K now. I contacted the credit union about the possibility of a short sale, but they said no. I can't help but think we would be better off letting it get foreclosed on even though we are current on the payments, as it has drained our savings. Thanks!

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David Montgo…, Agent, Troy, MI
Tue Dec 7, 2010
A foreclosure may not relieve you of a deficiency if your credit union bids less than its mortgage balance at a sheriff sale. It's been happening more and more on Michigan properties because Michigan considers the debt settled if the bank (or credit union) bids the full amount the loan at sheriff sale. Even if it is its own loan.

Banks & mortgage companies are now bidding less than their loan balance to be able (or have the right) to come after you for the difference. I would recommend consulting with an attorney on this because it can be rather tricky.
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Maureen Fran…, Agent, Birmingham, MI
Tue Nov 9, 2010
Sorry to hear about what you are going through.

In addition to the possibility of recourse, which is obviously the worst ramification, you will also take a hit on your credit score. Your lower credit score could impact your husband if you want to borrow money together in the future, or for other things that use your credit score like insurance.

Personally, I would recommend you consult an attorney here in Michigan. They might be able to reopen the short sale option for you at best. Many will give you a free consultation. If you need referrals to attornies you can email me through my profile here on Trulia.

Good luck!
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Hannah Flieg…, Agent, Larkspur, CA
Tue Nov 9, 2010

You want to confirm which type of loan you have. There are two types a recourse loan or a non-recourse loan. If the loan is non-recourse what that means is the lender has the right to the collateral (property) only and does not have the legal right to come after you.
If your loan is a recourse loan, then the lender can legally go after the collateral the property and possibly you for the difference (depending on your paperwork and how the lender forecloses) There are two types of foreclosure. Judicial foreclosure and Non-Judicial foreclosure.
Once you know where you stand with your paper work you can then decide which is the right option for you.
If you can rent the house to cover the debt obligations then the fact that the property is negative equity is a bummer but it is not a reason to dump the property.
From your question I did not understand exactly who is on title for the property and who is on the home loan. There are two things:
1st their is a Grant Deed this means who is on recorded title to the property.
2nd there is a Deed of Trust or Mortgage. Who is on the loan.
Whoever is on the Deed of Trust or Mortgage is the responsible party for the debt obligation of the home financing.

Here is a link with a video which I hope is helpful to you.

Hannah Fliegel, FICO Pro
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