Bought new home after BK. Previous mortgage included in bankruptcy. It can be done!
I'm posting this in hope someone else can be helped by my experience.
I searched high and low and could find no known instances of someone purchasing a new home while simply walking from a previous home which mortgage was discharged under a prior Chpt 7.
IT IS POSSIBLE.
The specifics.
Chpt 7 discharged in 11/2006
1st and 2nd mortgage included and discharged in BK, NOT REAFFIRMED.
Chose to stay in home and continue making payments for 4 years. AKA Ride-through or Pay and Stay.
In 09/2010 we had to move for numerous reasons. Consulted Attorney about home. Our initial plan was to simply walk as we had no personal liability for the home and go rent.
Attorney advised we should technically be able to just go buy another home as enough time had passed to qualify for FHA even though prior home was still under our name. By his own research the prior home should not even come into play.
We stopped paying on ride through home to save for down payment. Also verified my credit report. Found 1st mortgage was still reporting as normal. This had to be fixed as as soon as we stopped paying it showed as late and would not work for a new mortgage app.
We contacted the mortgage company and credit agencies, provided documentation and record was corrected. Credit report now showed both mortgages as discharged in 2006 with no additional history. In the last year I had also purchased a car and received a credit card. FHA requires additional credit lines.
Credit report was now perfect since discharge and scores were well above FHA minimum.
By that time we had almost 6,000 saved as down payment and we started shopping. We started working with a mortgage lender who fully understood our situation and was willing to work with us.
THAT IS KEY. USE A GOOD MORTGAGE BROKER THAT UNDERSTANDS THE SITUATION!!!
Just to test that out we contacted numerous other brokers. Some said it couldn't be done, some thought it was fraud, others put the application through only to decline it at underwriting out of laziness.
We found a great home and put in a contract. Because it was a short sale we had to wait for the contract to be approved by the sellers banks. That took about three weeks. At that time we submitted our official mortgage application. That was around 1/4/11. The process was quick but not without its quirks. In addition to all the normal documentation which any BK survivor would have needed we also had to supply
1) a letter from our lawyer which basically said we should not be denied a mortgage just because we chose to ride through on our prior home
2) supporting case law
3) additional bankruptcy documentation
4) MLS listing of prior home as were/are trying to short sell our ride through home simultaneously
In addition, securing homeowners insurance was a challenging as many insurers would not insure a BK. As if that made us more likely to be hit by a hurricane. Our insurance agent kept working and found us a policy at a good price.
By the mortgage brokers admission, his underwriters were skeptical and had to contact numerous other folks, including their own lawyers and the FHA itself. The main point is that they never gave up because it was difficult. They chose to educate themselves instead.
We closed on 1/31 on our new home. Our ride through home is still under my name and up for sale.
Why sell it? Its the fastest way to get it off my name. While its still on my name I have to continue paying HOA and utilities to keep up the lawn.
At the end it all came down to the broker.
Please PM me if you have any questions on this process.
I searched high and low and could find no known instances of someone purchasing a new home while simply walking from a previous home which mortgage was discharged under a prior Chpt 7.
IT IS POSSIBLE.
The specifics.
Chpt 7 discharged in 11/2006
1st and 2nd mortgage included and discharged in BK, NOT REAFFIRMED.
Chose to stay in home and continue making payments for 4 years. AKA Ride-through or Pay and Stay.
In 09/2010 we had to move for numerous reasons. Consulted Attorney about home. Our initial plan was to simply walk as we had no personal liability for the home and go rent.
Attorney advised we should technically be able to just go buy another home as enough time had passed to qualify for FHA even though prior home was still under our name. By his own research the prior home should not even come into play.
We stopped paying on ride through home to save for down payment. Also verified my credit report. Found 1st mortgage was still reporting as normal. This had to be fixed as as soon as we stopped paying it showed as late and would not work for a new mortgage app.
We contacted the mortgage company and credit agencies, provided documentation and record was corrected. Credit report now showed both mortgages as discharged in 2006 with no additional history. In the last year I had also purchased a car and received a credit card. FHA requires additional credit lines.
Credit report was now perfect since discharge and scores were well above FHA minimum.
By that time we had almost 6,000 saved as down payment and we started shopping. We started working with a mortgage lender who fully understood our situation and was willing to work with us.
THAT IS KEY. USE A GOOD MORTGAGE BROKER THAT UNDERSTANDS THE SITUATION!!!
Just to test that out we contacted numerous other brokers. Some said it couldn't be done, some thought it was fraud, others put the application through only to decline it at underwriting out of laziness.
We found a great home and put in a contract. Because it was a short sale we had to wait for the contract to be approved by the sellers banks. That took about three weeks. At that time we submitted our official mortgage application. That was around 1/4/11. The process was quick but not without its quirks. In addition to all the normal documentation which any BK survivor would have needed we also had to supply
1) a letter from our lawyer which basically said we should not be denied a mortgage just because we chose to ride through on our prior home
2) supporting case law
3) additional bankruptcy documentation
4) MLS listing of prior home as were/are trying to short sell our ride through home simultaneously
In addition, securing homeowners insurance was a challenging as many insurers would not insure a BK. As if that made us more likely to be hit by a hurricane. Our insurance agent kept working and found us a policy at a good price.
By the mortgage brokers admission, his underwriters were skeptical and had to contact numerous other folks, including their own lawyers and the FHA itself. The main point is that they never gave up because it was difficult. They chose to educate themselves instead.
We closed on 1/31 on our new home. Our ride through home is still under my name and up for sale.
Why sell it? Its the fastest way to get it off my name. While its still on my name I have to continue paying HOA and utilities to keep up the lawn.
At the end it all came down to the broker.
Please PM me if you have any questions on this process.
. we had no broker...did it ourselves.
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