If you can't afford your mortgage after losing a spouse, should you sell or walk away?

By Ilyce R. Glink and Samuel J. Tamkin
Saturday, June 12, 2010

I recently lost my husband to cancer. When he passed, I lost about two-thirds of our income. The house has two mortgages. My name is on neither the mortgage nor the deed. I cannot make the payments and have moved to a place I can afford. I told the bank to take the home. Will this affect my credit and can they sue me for anything? I have nothing left.

We're deeply sorry for your loss. It's hard enough to lose a loved one, but it's even harder when that event causes you a financial hardship.

In most cases, you should not be held responsible for your husband's debt on the home. He owned the home and owed the debt. If the home retained its value and can be sold for what was owed on the home, the lender will be happy.

If the home is worth more than the outstanding mortgage debt, you will probably want to hire a real estate agent to sell the property. You can talk to a real estate lawyer about how to go about selling the home. If things work out, you may come out with some cash from the sale.

If, however, the loan exceeds the value of the home, you're probably better off letting the lender handle the issues relating to the home. But if you go down that route, you'd better make sure that the bills that come to the home are not in your name. If all the bills were truly in his name and you have walked away from the home, it's unlikely that you would have any liability for those debts.

In some states, spouses who benefit from services rendered to their spouses can be held accountable for those debts. But if the only debt you are dealing with is the home mortgage, you're probably fine moving on. Just to be sure, you might want to talk to an estate planner in your area or a lawyer who deals with collection defense.

Finally, you should know that in some states, even if the lender is not satisfied and paid in full upon the sale of the home, that lender can't come after the person who owes the debt. That amount owed is called a deficiency, and the lender would attempt to obtain a deficiency judgment to get more money from the borrower.

If, as you have said, you've not only lost a loved one but don't have much in terms of assets, banks are not willing to spend good money trying to recover more money from a person whose ability to pay is quite low.

My grandmother left a nice inheritance of about $40,000 for my father. She left her house to my uncle. My father has been in so much trouble in the past that my grandmother put my uncle as an overseer on my father's bank account to ensure he wouldn't blow the $40,000.

My father was locked up for two years a day before my grandmother died and my uncle is now telling my father that the $40,000 that was supposed to be his was used to pay the taxes on the house that was left to him.

This is so unfair, especially because my uncle has been renting this home for the last two years. If he couldn't pay up the taxes from rent or use his own personal money, then he should have sold that house altogether. Is it legal for him to use my father's inheritance money to pay taxes on that home? My father just got out of jail and needs this money to get a fresh start.

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