Q: My husband’s stepmother added him to the title to her home prior to her death. She added him as a joint tenant with rights of survivorship. We understand the property transferred automatically to him at her death.
A: Before we discuss how you should or could approach the lender, we’d like to see you investigate the value of the property further. While you may be correct that the value for the property is basically the value of the land, we think you should double-check that. You can do a bit of sleuthing online to see what lots sell for in your area, and you can talk to real estate brokers or agents and get their input on the value of the property.
Sam has seen similar situations where his clients' estimation of the value of a piece of property has been way off, sometimes for the better and sometimes for the worse. Once you have a better understanding of the property's value, you can decide on what to do and how to approach the lender.
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If you do discover that the value of the property exceeds the mortgage, you might prefer to sell the property, pay off the loan and any closing costs and fees at the closing, and benefit from any residual cash from the sale.
If you do confirm that the property's value is lower than the amount owing on the mortgage, you can approach the lender and offer to give them the property in lieu of foreclosure.
You should know a couple of other things. If your husband’s stepmother added your husband to the title without his knowledge, your husband might have the ability to claim that he is not the owner of the property, as he never accepted ownership of the home. If he didn’t accept it, he might be able to claim that he isn’t the owner.
In either case, if the lender does not receive payments on the mortgage, the lender will foreclose on the property. Once the lender forecloses, the property will be the lender’s problem, and it should be out of your husband’s hands.
In some situations, you might be able to sell the property to a buyer and hope that buyer pays enough to cover the loan and closing costs. If the buyer is unable to offer enough, you might get the lender to approve the sale anyway as a short sale, where the proceeds of the sale are insufficient to pay off the debt and the lender allows the sale anyway.
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We doubt that your husband has any responsibility for the repayment of the debt, as the lender’s security is with the property. This means that if the property is lost in foreclosure, your husband’s credit should not be hurt. Unfortunately, if the credit reporting bureaus tie the property to your husband’s name, it could be an issue even if the debt is not in your husband’s name.
Why? Because the property itself could show up on your husband’s credit history and show a default or foreclosure. That default or foreclosure should only affect his stepmother, but his name on the title could still cause him a headache.
To avoid this headache, we suggest that your husband talk to an attorney to find out whether he has any responsibility regarding the property under the laws of the state in which the property is located. If he finds out that he does, then he should figure out how to navigate the process to minimize any issues or find out what he can do to avoid these issues altogether. Good luck.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.