There are situations where not all of the people on the deed are on the mortgage too. The lender can pursue the people who signed the mortgage and note. All of the owners of record will be notified about the foreclosure sale.
Below are examples of actual situations we have seen. The names have been changed to protect the parties.
The wife later added to the deed but not the mortgage.
John Doe borrowed money from a mortgage lender to purchase his home. A couple of years later, John married Jane. John decided to add Jane’s name to the deed, so they could both be official owners of the property. John and Jane then fell upon hard times, and they defaulted on John’s mortgage loan. John received numerous collection calls at the phone numbers he had registered with his lender. John’s credit score was severely damaged by the mortgage default, but Jane’s credit score was unaffected. The lender entered a Default Judgment against John in the county court. John and Jane both received notices of the foreclosure sale. When the house was foreclosed, John and Jane had to move out.
John permanently has a foreclosure against his record, and on future loan applications, John has to disclose the foreclosure. Jane has no foreclosure against her record, and on future loan applications, Jane can report that she was never foreclosed upon.
Divorce.
Joe and Sue Smith borrowed money from a mortgage lender to purchase their home, and both of their names went on the deed. A few years later, Joe and Sue decided to divorce each other. As part of the divorce agreement, Sue was allowed to continue residing in the house and Joe removed his name from the deed. The divorce agreement also called for Sue to remove Joe’s name from the mortgage and note. However, the mortgage lender would not simply remove Joe’s name. The lender told Sue that she had to pay off the loan in full or refinance to a new loan in her own name that would pay off the old loan. Unfortunately, property values dropped and Sue’s income was not sufficient to qualify for a loan.
For the time being, Sue decided to continue paying on the existing loan. Unfortunately, Sue could not maintain the payments, and the loan went into default. Both Joe and Sue received collection calls from the lender. Both Joe and Sue had default judgments entered against them.
Joe tried to explain to the lender that he had no more ownership or interest in the house, but the lender replied that he was still a guarantor. The credit scores for Joe and Sue went down. Eventually, the lender foreclosed, and both Joe and Sue had a foreclosure against their record.
Straw party.
Francis had a low credit score, so he convinced his friend James to sign for a mortgage loan. James purchased the house in his name, and Francis moved in. Francis made a payment every month to James, who then paid the mortgage company. Since they were friends, they had no written agreement between them.
One day, Francis was stunned to be served with a foreclosure notice. Francis learned that for the past year, James had not paid the mortgage even though Francis had been making payments to him.
James had been ignoring the collection calls from the lender all that time.
Francis tried to call the lender to ask them to transfer the loan into his name, but the lender would not even talk to Francis. Francis asked James to try for a loan modification, but the lender stated that they were too far along in the foreclosure process. The lender foreclosed on the house, and Francis was evicted. Francis and James did not talk to each other after that.
Improvements to the house.
Sally obtained a mortgage loan and purchased a fixer-upper. She did some of the work herself over time as she lived at the house. Unfortunately, the work she did was not up to code, and she had a lot of unfinished projects. Sally ran out of money and could no longer pay for repairs. She fell behind on her mortgage payments.
Sally approached her friend Fred, who was a handyman. Sally told Fred that if he paid for materials and finished the renovation, then Sally would sell her house and give him half the profit. Fred began work, repairing the shoddy improvements that Sally had already made in addition to handling some of the other projects.
One day while working at the house, a Sheriff’s deputy handed Fred a notice of a foreclosure sale. The notice stated that the sale date was the following month. Fred was stunned and approached Sally.
Sally said she would call a real estate agent to quickly sell the house.
The agent told Sally that property values had dropped in the area and that the fair market value was below the amount that Sally owed to her mortgage lender. The agent added that it was unrealistic to sell the house in a month. Sally listed the house with the agent as a short sale, but no offers came in that month.
Fred realized that all the materials he had installed at the house, and all his labor, were essentially lost. The buyer of the house at the foreclosure auction received the benefit of all the improvements. Fred and Sally never talked again.
