So you co-signed a mortgage and now you find out that the borrower is allowing the property to go into foreclosure. Now what?
There are several things to be aware of if you are a co-signor on a mortgage that is in default:
1. This is going to screw up YOUR credit. The foreclosure will be on your credit report as well as the borrowers. This means that you can forget about qualifying for a mortgage yourself for the next five to seven years. Universal default policies on your other lines of credit (credit cards, lines of credit) may result in credit accounts being cancelled, balances called due immediately, interest rates going up, etc.
2. After the foreclosure has occurred, the lender has the option to pursue the co-signor for the amount of the debt that the lender was unable to recover from the sale of the proeprty. This is true, EVEN IF, the lender forecloses via advertisment. In Minnesota, if a lender forecloses via advertisment (as opposed to foreclosing judicially) the lender gives up the right to obtain a deficiency judgement against the borrower if the proceeds from the sale of the property are not enough to pay the debt in full. This doe NOT APPLY TO A CO_SIGNOR. The co-signor may still be pursued for the deficiency.
So what should you do if you co-signed on a mortgage that is going into default / foreclosure? Do not ignore the situation! You should try and settle the debt if at all possible. Call me today for a free consultation 612-554-5901.
