Spouse's bankruptcy raises issues for married homebuyers

There are several issues for married couples to consider when applying for a mortgage, especially if one of them has recently filed for bankruptcy protection.

Q. I got married last year, and my husband and I would now like to purchase a house. My own credit score is very high, but my husband's score is extremely low because he filed for bankruptcy shortly before our wedding. How will this impact our ability to get a mortgage? Do you have any ideas to improve our chances of getting the loan approved?

A. Obtaining a mortgage today won't be nearly as easy as it would have been a few years ago, when home prices in most areas were still rising fast and banks were willing to issue a loan to anyone who had a pulse. But the two of you still might be able to find the needed financing, provided that you're willing to contact several lenders or can find a good mortgage broker.

Banks usually charge a higher interest rate or fees to borrowers who have filed for bankruptcy in the past year or two, and some won't loan to them at all. So a key issue here is whether you should apply for the loan in your bankruptcy-free name only or if it would be better to apply as a couple despite your husband's blemished credit record.

Explain your situation to the lenders or mortgage brokers that you contact and ask them for two written quotes - one for the terms you would get if you applied for the loan jointly and the other for the terms that you would get by applying in your name only. If you would get a better deal by applying by yourself, you could take title to the property on your own and then add your spouse's name to the deed after the transaction closes.

Federal bankruptcy laws are complicated, made even more so by state regulations that can impact the rights of property owners and creditors alike. This means that your husband's name should not go on the title - whether you apply for the loan together or apply by yourself - until both of you have talked with a lawyer to determine whether his creditors can slap a lien on the home to collect his unpaid debts.

Q. Is it true that the guy who used to run Lehman Brothers recently sold his mansion to his wife for just 10 bucks? If so, it's probably the worst example yet of the greedy bankers who can't change their selfish ways!

A. Yes, it's true. Richard Fuld - the former chairman and chief executive officer of financial-services giant Lehman Brothers who is widely blamed for the firm's collapse last fall - recently sold his share of his luxurious mansion in the swanky Juniper Island neighborhood of Florida to his wife for a paltry $10. According to public records, Fuld and his spouse purchased the property for nearly $14 million in 2004.

It's unclear why Fuld made such an unusual transaction. Some legal experts believe it's an attempt to keep the manse as far away as possible from creditors and shareholders who are suing to recover some of the money they lost in the various Lehman investments that Fuld once touted even while he allegedly knew that the company was tanking.

Undoubtedly, a judge will ultimately decide whether the disgraced banking exec's novel real estate strategy will work.

Q. I am in the process of selling my house, but the closing date has been pushed back because some minor repairs need to be made. The problem is that the new closing date lands right in the middle of a two-week sea cruise that I have had planned for a year, and I cannot get a refund if I cancel my ticket. The buyer is already impatient and will not agree to delay the closing further. What can I do?

A. First, don't panic. Discuss the problem with your real estate agent and the closing attorney or escrow office who is handling the transaction, and ask for suggestions.

The closing documents you will need to sign probably can be sent directly to the cruise ship, or to a pickup spot in one of your ports of call via Federal Express or some other overnight service. You can then sign the papers and send them back the same way.

It's important, though, to ask your closing agent whether any of the documents will need to be signed in front of a notary public. Finding a notary should be easy if the ship stops in a U.S. port, but it could pose a problem if the docs are sent to a foreign country. Some big cruise lines have an onboard notary, so check with the line now to see if one is available.

As an alternative, you could consider giving your realty agent, lawyer or someone else that you trust a temporary "power of attorney" form that will allow the person to sign legal papers on your behalf. The pre-printed forms are available at many stationery and business-supply stores for less than $25: When you return from vacation, you can get the document back and tear it up to restore the right to make your own legal decisions.

• For a copy of the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.