A New Problem – Foreclosure and Mortgage Loan Modification When The Loan Is Not In Your Name

I am seeing a recurring new problem. Many clients and callers own properties with mortgage liens but the mortgage is in someone else’s name, usually a family member like a spouse, parent or cousin. It appears that many such loans were made around 2005 when values were increasing and homeowners refinanced to tap into their new found equity. Some did so out of necessity – to get funds to pay off credit card debts or resolve a mortgage default and catch up on arrears. Others did this to get funds to renovate or repair the property. In some cases, the homeowner/true person interested in the property (i.e. living in the home) did not have good enough credit to qualify for the loan. So instead some of these new loans were made with a family member who had good credit but who really had no interest in the property. Now, flash foward a few years later . . . .

and guess what happened – the homeowner who has been making the payments defaults under the mortgage and falls behind. The property ends up in foreclosure. The homeowner wants to modify the loan but the lender does not have contractual privity with the homeowner because it is not his or her loan. What can the homeower do?

This is a difficult question. The easy answer is the homeowner should try to refinance the property and get a new loan; however the reality is that the homeowner will probably not qualify for several reasons, including: lack of equity (a high loan to value ratio), poor credit, and perhaps insufficient income. For the homeowner who is seeking to keep the home and modify it helps if the family member who took out the loan will cooperate – because any loan modification must be done in the actual borrower’s name. It does not help that the family member who is the actual borrower may now be a defendant in the foreclosure action. The lawsuit can create a rift. However, if you have an understanding family member, it might be possible for you to work together and modify. To show your income to the bank and have it count, you might consider making a lease with the family member who is on the loan. You would in effect be considered a tenant by the lender and your rent would be counted as the borrower’s income. You might also consider asking the bank to just consider your income as a contribution to the household – something that is done often in Chapter 13 bankruptcy – however, outside of bankruptcy, the lender does not have to consider your income. If the lender had wanted to include your income in the equation, it would have given you the loan in the first place. Another thing to consider is whether the loan might qualify to be refinanced under the government’s HARP program.

If you would like to discuss your mortgage or foreclosure concerns with me in a free phone consult, please email, call or fill out our free consult form (see link to the right on this page) and we will schedule a consult.