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It is all going to depend on if her name is XXXXX XXXXX note or not. If her name is XXXXX XXXXX refinanced mortgage they will pursue her for the note, and will have the legal right to do so. They will sue her for the difference between what they get at the sale and what was owed on the note, its called a deficiency judgment.
The only way to avoid this if she is on the note, is to file a joint bankruptcy petition.
Well you said she didn't sign the note, then you said she signed the refinance. If she signed the refinance, that is a new note, and makes her responsible for the note she signed. If she didn't sign the refiance note or the original note, then she has nothing to worry about. I know you must be quite stressed.........
Are there two mortgages? or did you just refinance the original mortgage.
If she is not on either note, you will be fine. I am actually not sure why they would have her sign mortgage papers and not the note, but if she did not agree to the note by signing, then she is not on the debt.
I would pull both of your credit reports from all three credit bureaus, you can do this once a year for free at www.annualcreditreport.com, and see if the mortgage is being reported on HER report. Reason is the bankruptcy, if done, may show up on her report because the mortgage was discharged. If the mortgage is being reported, dispute it now stating that this is not her mortgage, that way it will not show up as a bankruptcy down the road if you do end up filing.