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Short sale is better than bankruptcy when owner is upside down

Dear Benny: I am upside down on my home, which I purchased before getting married, and my spouse has not been added to the loan.

Can I do the following without wrecking my spouse’s perfect credit: (1) short sale and default on the balance, or (2) declare bankruptcy?

–Anonymous

Dear Anonymous: If you are not able to work out a modification with your lender, I see no problem with either approach.

I would prefer the short sale over bankruptcy, however. You should keep in mind that when there is a short sale, many lenders still try to get the deficiency balance from you.

I assume, however, that you will discuss your options with your spouse.

(Note to readers: I will not respond to anonymous e-mails. But I will respect readers who provide their name and e-mail address but ask me not to publish that information.)

Dear Benny: My divorce was finalized in January 2009. There are two properties, and both of us are on title as well as obligated under the mortgages. Our property settlement indicates we have until 2012 to refinance or sell.

My ex-husband remarried two months after the divorce. There is nothing specific in the divorce decree pertaining to the properties and remarriage.

I am encouraging him to attempt to either assume or refinance one property, and I would do the same with the other one. But he is not responding.

My hands are tied. He has been more than 30 days late on the mortgage for which he is responsible — through our property settlement — and he has charged more than $12,000 on a credit card where I was an authorized user. I have contacted the card company to ensure I am removed as an authorized user and have disputed this through the reporting agency.

Both of these issues, obviously, have affected my credit, and I fear that additional financial hardship on his part is going to tank my credit.

All I want is for my name to be removed from that debt and deed so that I can do the same. How can I push the issue, legally? Amend the property settlement?

Something such as this must have occurred elsewhere, for this certainly couldn’t be the only existing case like this, could it?

–Stacie

Dear Stacie: It will not be a consolation to you, but you are not alone. This happens quite often when couples who own property — even just one house — get divorced.

I am surprised that your property settlement agreement was not made a part of the divorce agreement, but perhaps your attorney had a reason for that. But since your ex does not have to take any action until next year, your hands are, unfortunately, tied.

However, if your ex is required to keep the mortgage payments current and is not doing that, you could take him back to court. But that’s time-consuming and expensive.

The real problem is that lenders will generally not let one spouse off of the mortgage. They made the loan to husband and wife based on their joint income, and the only way to resolve this is for one party to refinance or sell. When that occurs, the house can then be transferred from the two of you just to the refinancing party.

Mortgage interest rates are still quite low, and by 2012 may be much higher. They are already starting to creep up.

Try to convince your ex that if he waits until next year, his mortgage payments may be a lot higher. And if he is unable to qualify next year for a refinance loan, the properties may have to be sold.

Maybe that threat will work.

Benny Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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