Expert: Dick Dennis - 4/13/2009

Question
QUESTION: A relative is considering mortgage default.  Mortgage on Colorado house is $300K, comp. sales are $170K.  He moved out of house two years ago and is renting it for $1.3K/mth.  He is currently living in an apartment in another state (CA).  His and his wife's name (maiden name because they weren't married at the time) is on the title of the house, but only his name is on the mortgage.  If he quits paying the mortgage, what are the ramifications for him and his wife?  Does he/they have to declare bankruptcy?  He is about to loose his job and her salary isn't enough to pay apartment rent and the mortgage (even with the tenant's $1.3K rent).  Will both person's credit ratings tank? (CA is a community property state; CO?)  Will default effect hiring potential?  How long before they might expect to be eligible to buy another house?  Does mortgage default effect automobile loans?

ANSWER: First of all, John, let me make sure the rent for that house is $1,300 per month and not $13,000 as your $1.3K indicates. That is an awfully large rent for a $170,000 house. Only his credit will be damaged by letting the house go into foreclosure since she is not on the mortgage with him. However, it depends on what state he declares bankruptcy. And if they own other together on which they are making payments, everything must be stated on on a bankruptcy. Now, you are asking questions best answered by a bankruptcy attorney. Let him and his wife talk with that kind of attorney to know what kind of ramifications they should expect. I do wish you well.

Dick Dennis

---------- FOLLOW-UP ----------

QUESTION: Yes, Dick $1.3K is $1,300 ($13K=$13,000).  If I understand you, walking away from a mortgage does NOT require bankruptcy?  Defaulting on a mortgage is a credit damaging process, but does it reflect on or is it damaging to the potential of being hired (in a non-financial job)?

Answer
That is true, John. Walking away from a mortgage does not have to have anything to do with bankruptcy. In fact, you can keep the house and still do a bankruptcy. I was talking to an attorney the other day and in fact you can "affirm" any debt you may have while doing a bankruptcy. I know that for a fact when I did a chapter 7 23 years ago. Your credit score cannot be any worse than when you do a bankruptcy. However, you can buy a house again in three years some banks are saying. Providing you have made an effort to improve your credit.

You DID write $1,300 incorrectly. You wrote $1.3K. The K stands for three zeroes. So, if that be the case, John, what you wrote was $1,3000. There cannot be more than three places between commas. Therefore, you wrote $13,000. You take care.

Dick Dennis