[The Professor]

Thanks for that clarification. First of all, placing your spouse on title doesn't result in her being responsible for the debt, but just to insure that some credit reporting agency doesn't make a mistake and believe she is liable because of her ownership interest in the home, I'd recommend that she quitclaim her interest in the home back to you and your record the quitclaim deed. That will vest the entire ownership back to you.

Next, at first blush, and in all probability, given the facts as presented, your lenders' sole recourse is to foreclose. That is because of the purchase money nature of the two loans, and the fact that the purchase was for your personal residence. The key law is California Code of Civil Procedure Section 580b. It defines the "non-recourse" nature of purchase money loans like yours.

But (and I hate that word "but") there is an outside potential of liability. The danger here relates to your second loan. Obviously, given the property value and the balance owed on the first loan, the second loan is secured by nothing but the fleeting memory of inflated values of days gone by. So what will happen is the first will foreclose, eliminating the second loan's secured interest in the home. Once that happens there is the potential that Chase (or some creative collection agency) that makes an attempt to collect on the debt, might try to argue through the filing of a lawsuit, that you obtained the loan through your overstating your income (a common story in what in the industry are called liar's loans (aka income stated loans).

My own sense of things is given at least one recent decision (actually a California bankruptcy court decision), a judge might likely conclude that reliance on income figures provided in a liar's loan isn't reasonable, and deny the lender's claim. But there is that chance you might be pursued based upon this sort of claim (assuming your income was overstated). So you need to look into what was actually stated as income in your loan application to determine if it was an accurate reflection.

By the way in these liar's loans it wasn't uncommon for borrowers to sign the application after it had been modified by the loan officer to reflect a higher income than the borrower represented they made to the loan officer. So just because it has a higher figure than what you actually earned doesn't mean that you made the misrepresentation. Isn't it funny what greed can cause a commission based loan officer to do.....

Assuming your wife qualifies from an income standpoint, I don't believe your foreclosure will impact her ability to qualify for a loan.

As you will learn from my other postings, where you have two loans like you have here, getting either lender to take a deed-in-lieu is next to impossible. Short sales where you have two lenders are next to impossible to conclude successfully (as the two lenders fight over who gets what). No doubt you are facing foreclosure as the only real option. My suggestion is you stay in the house as long as possible (even after foreclosure) and then exchange "keys for cash." If you are unfamiliar with that phrase search through my other postings today and it will be explained.

Take care,

Daniel