One Person on the Mortgage, Two on Title: Short Sale?

So What Happens in a Short Sale?

You're considering a short sale, but there's a complication.

Only one person is on the mortgage.

Two people are on title to the property.

Maybe it's your spouse.

An ex-spouse.

A partner.

A family member.

Or someone who was added to title after the property was originally purchased.

Now you're wondering:

Does the person who isn't on the mortgage have to submit financial information for the short sale too?

Maybe that person doesn't want to provide bank statements.

Maybe they don't want their income considered.

Maybe you aren't even sure why the lender would need information from someone who isn't responsible for the mortgage.

The answer depends on the particular loan, investor, servicer and short-sale requirements.

But there's an important distinction that can make the situation much easier to understand:

Being on the mortgage and being on title are two different things.

Being on the Mortgage Is Not the Same as Being on Title

These terms are often used interchangeably in ordinary conversation, but legally and financially they describe different relationships.

The mortgage loan involves the debt.

The title establishes ownership of the property.

That means it's possible for someone to have an ownership interest in a property without being personally obligated on the mortgage note.

And that creates an interesting situation in a short sale.

The lender is being asked to approve a sale in which it may receive less than the full amount owed on the mortgage.

At the same time, the owners of the property are being asked to transfer their ownership interests to the buyer.

Those are related issues.

But they aren't exactly the same issue.

Who Is the Borrower?

If only one person signed the mortgage note, that person is generally the borrower responsible for the mortgage debt.

That's important because short-sale financial and hardship requirements are generally centered around the borrower.

Depending on the applicable short-sale program and servicer requirements, the borrower may be asked to provide information such as:

• Financial statements
• Bank statements
• Income documentation
• Hardship information
• Tax documents
• Mortgage information
• Authorization forms
• Other documents required by the servicer or investor

Exactly what is required varies by the loan and short-sale program.

What About the Person Who Is on Title but Not the Loan?

This is where homeowners understandably get confused.

Someone who isn't a borrower should not automatically assume that they will be required to submit exactly the same financial package as the person who owes the mortgage.

But they also shouldn't assume:

"I'm not on the loan, so I have absolutely nothing to do with the short sale."

If they're an owner of the property, their ownership interest still has to be addressed in order to complete the sale.

That can mean signatures and other documentation will be necessary.

And depending upon the particular circumstances, servicer/investor requirements and transaction, additional information may also be requested.

The safest approach is not to guess.

Find out what the actual lender or servicer requires for your particular short sale.

Does Everyone on Title Have to Agree to the Short Sale?

Generally, all ownership interests necessary to convey clear title to the buyer have to be addressed.

That's extremely important.

Imagine two people own a property.

One wants to short sell it.

The other refuses to cooperate with the sale.

The fact that only one of them is responsible for the mortgage doesn't automatically eliminate the other person's ownership interest.

This is why I want to know who is on the loan and who is on title early in the process.

We don't want to discover an ownership problem after we've already found a buyer.

What If the Other Owner Is My Spouse?

Don't assume the answer based solely on marital status.

Who signed the note?

Who is vested on title?

How is title held?

What does the applicable servicer or investor require?

There can also be state-law considerations affecting property rights.

The transaction needs to be evaluated based on the actual documents and circumstances rather than assuming:

"We're married, so it doesn't matter."

or:

"My spouse isn't on the mortgage, so the lender can't possibly need anything from them."

Neither assumption is a good substitute for determining the actual requirements.

What If the Other Person Is My Ex-Spouse?

This can become more complicated.

Maybe both of you originally owned the property.

Maybe one person was responsible for the mortgage.

Maybe ownership was addressed in a divorce agreement.

Maybe someone was supposed to be removed from title but never was.

Maybe one person moved out years ago and hasn't thought about the house since.

Then the remaining owner needs to sell and discovers:

The ex-spouse is still on title.

A divorce agreement by itself doesn't necessarily mean the public title records already reflect what you believe was supposed to happen.

Before beginning a short sale, it's important to determine how title is currently vested.

If an ex-spouse still has a recorded ownership interest, that may need to be addressed before the property can be transferred to a buyer.

What If the Other Owner Doesn't Want to Provide Financial Information?

Don't assume that means a short sale is impossible.

First determine whether the information is actually required.

The non-borrowing owner may not be subject to exactly the same financial-documentation requirements as the borrower.

On the other hand, the servicer or investor may require certain documents or information depending on the circumstances.

Rather than arguing about hypothetical requirements, let's find out:

Who is the borrower?

Who owns the property?

Who is servicing the mortgage?

Who owns or guarantees the loan?

What does that particular short-sale program require?

Once we know that, we can deal with the actual issue instead of worrying about something that may or may not be required.

What If the Other Owner Won't Sign Anything?

That's a different problem.

Not wanting to provide a bank statement and refusing to participate in the transfer of the property are not necessarily the same issue.

If another person has an ownership interest that must be conveyed for the sale to close and refuses to cooperate, the transaction can become substantially more complicated.

A real estate broker cannot resolve an ownership dispute between parties or provide legal advice about forcing another owner to sell.

Depending upon the circumstances, legal advice may be necessary.

That's another reason to identify ownership issues before putting the property on the market whenever possible.

Why I Want to Look at Title Early

When I'm evaluating a potential short sale, I don't want to know only how much you owe.

I also want to understand who owns the property and what liens are recorded against it.

A preliminary title report can reveal issues that homeowners may have forgotten about or never realized were important.

That might include:

• Additional owners
• Old deeds of trust
• Partial claims
• Judgment liens
• Tax liens
• HOA liens
• Other recorded interests affecting the property

Finding these things doesn't necessarily mean the short sale can't be completed.

It means we know what we're dealing with.

And that's much better than finding out after you're already in escrow.

Don't Assume Your Situation Is Too Complicated for a Short Sale

This is where homeowners sometimes stop themselves before they even begin.

"My spouse is on title but not the loan."

"My ex is still on the deed."

"My relative owns part of the property."

"The lender only has my name on the mortgage."

"The other owner won't give the lender their financial information."

And from there:

"There's no way I can short sell this house."

Maybe there is a problem that needs to be resolved.

Maybe there isn't.

But we don't need to decide that based on assumptions.

Let's identify the actual ownership, the mortgage borrower, the lender or servicer requirements and any other liens affecting the property.

Then we can determine what the next step should be.

One Loan. Two Owners. Let's Find Out What Your Short Sale Actually Requires.

If you owe more than your California home is worth and are considering a short sale, don't let an unusual ownership situation stop you from asking questions.

Maybe only one owner is on the mortgage.

Maybe the other owner isn't sure what they will have to provide.

Maybe an ex-spouse is still on title.

Maybe you're not even sure exactly how title is currently held.

You don't need to figure all of that out before you contact me.

That's where we start.

I've worked with complicated short sales and distressed-property transactions for many years. We'll identify the parties involved, look at the property and mortgage situation, and determine what information we need to obtain next.

Sometimes the first step is simply figuring out what the real problem is.

Can I talk to someone confidentially about my situation?

Absolutely. Every homeowner's circumstances are different, and many people simply want to understand their choices before deciding what to do next.  Please complete an options form by clicking on one of the buttons on the page.  If you are browsing during business hours contact our broker Dawn Anderson by either calling or texting on her cell - 714-932-1746

Tell her a little about what's happening, and we'll take it one step at a time.

Short-sale requirements vary by mortgage servicer, investor, insurer/guarantor, loan program and individual circumstances. Ownership and marital-property issues may also involve legal considerations. This article provides general educational information and is not legal, tax or financial advice.