What if Your Spouse Had a Deed in Lieu?
When a homeowner is behind on payments and the lender is looking toward foreclosure, the homeowner can propose an agreement of turning over the deed in lieu of foreclosure. In this situation, the lender does not have to go through the lengthy and costly process of foreclosure. If your spouse has had a deed in lieu of foreclosure agreement, this has several effects on your spouse and on potentially you both as a couple.
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Spouse's Credit
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If your spouse turned over his deed in lieu of foreclosure, this will seriously affect his credit score. The extent of the impact depends partially on whether the lender reports a deficiency balance, which is debt due to the home's value not being as much as the mortgage balance. Even if the lender forgives this balance, it still hurts your spouse's credit score more than if the home was worth as much as your spouse owed on the mortgage.
Your Credit
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The deed in lieu will not affect your credit score at all, assuming your name was not on your spouse's mortgage on that home. This is because you and your spouse have entirely separate credit reports and credit scores. The only way that information can appear on both of your reports is if you both sign the agreement on a particular loan or credit card. Therefore, your spouse's deed in lieu will not lower your credit score at all.
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Deficiency Balance
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If the deed did not pay off the balance and the lender did not agree to forgive it, the lender can pursue your spouse for the deficiency balance. In this situation, your spouse's salary and assets, along with any assets you hold jointly, are in jeopardy. If the lender gets a court judgment, it can garnish wages or bank accounts to repay the deficiency balance.
Joint Credit
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Getting joint credit with your spouse might be difficult in the years following the deed in lieu of foreclosure. This is because your spouse's low credit score makes him a significant credit risk for the lender. You might end up having to pay higher interest rates on joint credit, such as credit cards or auto loans. In addition, your spouse might not be able to get any credit in his name only. If you are looking to buy a home together, your spouse's bad credit could cause your application to be rejected or could trigger a higher interest rate. If you can afford to buy the home on only your income, you could apply without your spouse to get approved based on your credit score.
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