A Westminster woman wants to know what a mother's situation is if her name is on a home mortgage loan with her daughter and son-in-law, who cannot make the payments. The house may be foreclosed.
This is not a good situation for anyone involved. Mom, daughter and son-in-law are liable on the loan, and default will go on their credit records. The lender may take a loss on the house.
The likely reason that Mom co-borrowed or co-signed was that her daughter and son-in-law could not qualify for a loan on their own. Of course Mom wanted to help. They are her family and she loves them. But it would have been a good time for a frank, businesslike financial discussion, and an assessment of whether Mom had backup funds available if she had to make payments.
Suppose the young couple obtained the mortgage through the Federal Housing Administration. The FHA distinguishes between co-borrowers and co-signers on loans.
If Mom was a co-borrower, she took title to the property with daughter and son-in-law and signed the security instruments, documents that pledged the property as security on the loan. Her income, assets, liabilities and credit history were considered with the couple's in the decision whether to grant a loan.
As a co-borrower, Mom is obligated on the mortgage, meaning the lender will expect her to make payments if her daughter and son-in-law cannot. If the property is foreclosed, she will lose her share of ownership of the house.
If Mom was a co-signer, she does not have an ownership interest in the property and is not required to sign the security instrument. Mom is not losing her one-third interest if daughter and son-in-law default, because she didn't own any part of the house.
As a co-signer, Mom is responsible for repaying the loan and must sign all other documents, including the loan application that provides information a lender will use to determine creditworthiness. If she wants to take out a loan for some other purpose, the mortgage will count as a debt on her credit record.
Maryland is generally a judicial foreclosure state, meaning foreclosure is usually overseen by the courts. If daughter and son-in-law have not made payments, Mom has not picked up the payments and efforts to renegotiate the mortgage have failed, the lender can file suit to reclaim the house.
If the lender in this case chose to use non-judicial foreclosure, which is permissible in Maryland, Mom and her family likely signed a deed of trust and a promissory note when they bought the property. The deed of trust turned the promissory note into a debt secured by a lien against the property, so the lender can proceed to foreclose outside of court.
If the property is foreclosed, daughter and son-in-law will need a place to live, and all three will have to rebuild their credit ratings.