Published January 23, 2013
Dear Bankruptcy Adviser,
My wife and I divorced in 2011. Afterward I had to file bankruptcy. Included in the bankruptcy was my mortgage loan. My ex stayed in the house for a few months until she found a new place. I assumed once I went through bankruptcy and the mortgage was discharged that the debt then fell to my ex exclusively. Now she is saying that I need to sign a deed-in-lieu of foreclosure. Is it necessary for me to do so, or is this her issue to deal with alone? Would it further hurt me to sign this deed after I filed bankruptcy?
You are correct to assume that the bankruptcy discharge eliminated your liability on the mortgage. As long as you did not reaffirm the mortgage loan while your case was active, the discharge means the lender can't come after you for the unpaid mortgage balance; that the county can't come after you for unpaid property taxes; and that the insurance company can't come after you for unpaid homeowners insurance premiums.
Your ex-wife may be asking you to sign a deed-in-lieu of foreclosure for other reasons. A deed-in-lieu of foreclosure means that you are relinquishing the title of the house back to the lender before the lender forecloses on the property. If the lender is willing to do this (most lenders aren't), it expedites the process of returning the house to the lender and getting the property entirely out of your name.
In some cases, lenders are taking years to complete a foreclosure. So transferring a title back to the lender more quickly allows you to get the property out of your name and begin the credit recovery process sooner. In general, new lenders state that you must wait a minimum of two years from the date of foreclosure to buy another home. You are being given the opportunity to start that two-year period sooner.
Some people may wonder why the bankruptcy did not remove your name from the title or the mortgage loan. The bankruptcy only wipes out your liability on the mortgage, but it does not remove your name from the mortgage loan or the title to the property. To do that, the property must either be transferred back to the bank or refinanced out of your name. Until either of those two options happen, you are still the legal owner of the property even if you don't have any legal obligation to pay for the property.
At this point, I can't see any negative consequences of signing your name off the title and expediting the return of the property to the lender. You don't want anything to do with the property, so the sooner it is out of your name, the better.
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