A short sale is the sale of a home for less than its market value. It is a popular strategy for a homeowner seeking to avoid the damage caused by a foreclosure. The damage a short sale causes to a spouse's credit depends on several factors, including when the property purchase occurred and the debtors named on the mortgage.
Name on the Mortgage
A short sale should not affect your personal credit rating if the mortgage in question was in your husband's name only. You shouldn't experience a problem in getting a personal loan as long as the loan does not require your husband to act as a cosigner. If he must cosign, this could make loan approval difficult, because the bank will examine his credit score and use it to determine your eligibility for the loan.
Joint Marital Accounts
Your credit could suffer from a short sale if your name appears on the mortgage of the property in question along with your husband's or if you cosigned the original home loan application. The damage a short sale causes to your credit score varies based on how delinquent mortgage payments were prior to the sale of the property. According to Consumer Finance Report's website, a lender considers a mortgage 90 days past due as seriously delinquent and eligible for formal foreclosure proceedings. A significant delinquency like this could make it difficult to secure a new personal loan, while payments less delinquent may allow you to obtain the loan, albeit with a high interest rate. A lender typically reports a delinquency to a credit bureau when payment is more than 30 days past due.
Deficiency Judgments
Your husband may have to pay a deficiency judgment for any outstanding amount remaining on a mortgage after completing the short sale. According to Loan Safe's website, this could leave you and your husband owing the mortgage lender hundreds of thousands of dollars if both your names were on the mortgage. The lender may still report the short sale to major credit bureaus, and Loan Safe states it may lower you and your husband's credit score between 85 and 160 points. Even if you and your husband can afford to pay off the remaining balance on the loan, the damage to your credit could keep you from getting a loan.
Assets Before Marriage
States usually consider assets held prior to the marriage, including real property such as a home or business, as separate from marital assets. This means your credit should not suffer if your husband conducts a short sale on property he held prior to your marriage. Your ability to secure a new loan in your own name remains unaffected. You should continue to carry debts in your name only, because your husband's credit probably will be lower than yours after the short sale.
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