If we co-own a home but a loan is in my mom's name, are we still liable for the loan?
My mom owns a condo. Mom and us four kids are the legal owners of the condo. My brother took out a loan against the condo, but the loan is in my mother's name. When my mom passes away will her loan count against our credit rating if we choose to walk away and give the lender the condo because the condo is worth less than the balance of the loan? Can the lender come after our (the kids') personal finances to pay the loan?
Expert Answer
I am not an authority on credit ratings, so I can't give you a definite answer on your question about liability for loans on co-owned property.
As a common sense matter, let's start with the reality that you and your siblings, as well as your mother, are the legal owners of the condo. The siblings will remain legal owners after your mom passes away. If the siblings default on the condo mortgage, why wouldn't that default affect their credit ratings? Why would it be different from any other default? I suspect the default would be reported on the siblings credit ratings.
I also do not know if the lender can come after the siblings' personal finances to pay the loan. The lender must first (I assume) go after the condo, and obtain it. The question then becomes, can the lender go after the siblings for the difference between the loan balance and what the condo is now worth. That depends on whether the state where the condo is allows what are called "deficiency judgments." A deficiency judgment is one a creditor obtains for the difference between a loan on a piece of real estate (such as a condo) and its worth at foreclosure. Many states have laws prohibited deficiency judgments in real estate, especially for property used as a primary residence. So you'd need to determine the law of your state on this issue.