Wow...it's been a journey...and it's not over yet. But I'm going to write our story here in the hopes that somebody will read it and be encouraged. Perhaps what we've gone through can help somebody else. It's really long and detailed, but I hope somebody might find some useful information here.
The background timeline:
2003: My soon to be husband and I purchased our first home...a multifamily. Our intent was to reside in the property, rent out the other units, renovate the entire place and then either sell or refinance, take the profits and buy a single family (which were incredibly too expensive for us).
2005: That multifamily home had already increased quite a bit in value. We refinanced it at 80% LTV, cashing out about 20k in equity, intending to use some of that as a 3% down payment for an FHA home on a second property, also a multifamily.
--Turns out, we couldn't use FHA (I don't remember why, we've gone through a lot...lol).
--Our 20k was not enough of a down payment for the property we were interested in. But our mortgage broker...the son of a very good, long time and much trusted family friend, was able to finance us with an 80/20 loan. We balked at the high rates and subsequent high payment. But going in, we knew the house was appraising for quite a bit higher than we were purchasing it for. The mortgage broker told us we could refinance in six months at less than 80% LTV, thus dropping the rate and payment substantially.
--From the very day we closed on that property, we had tenant issue after tenant issue at the new house. And for that matter, at our first house too.
2006: Our first child is born at the beginning of the year. Tenant issues continued. Three evictions, four if you count the crack addict we had living at our first property. Thousands in lost income, damages, legal fees, etc.
--Six months after we bought the second house, we sought to refinance. Our mortgage broker informed us he couldn't actually do that.
--We immediately put the second house on the market. The market was already beginning to crumble and the house simply would not sell. Offers came in, sure...but they were tens of thousands of dollars less than what we owed.
--We held on for nine months...paying everything on time. But it soon became apparent that we couldn't continue like that...our 20k in cashed out equity was gone. We held out hope that the property would sell...it never did.
Fall of 2006: We anticipated a foreclosure on the second property and filed a chapter 7 for relief from what would be a sure lien on our first property for the delinquency on the second property.
April of 2007: Our bankruptcy was discharged. Included was everything. We hadn't wanted everything included. We had thought it was clear to our attorney that we *only* wanted the debt pertaining to the second property to be disposed of. We didn't understand that debts we wished to keep would need to be reaffirmed. In fact, we didn't even know that the other debts (two car loans and our mortgage for the first property) were even discharged. This is solely my fault. We were in such a fog, I never picked up on that. I knew that everything had to be included, but I assumed the debts we wanted to keep just woudn't be discharged.
2007-2009: We set out to get back on our feet, lick our wounds and rebuild our credit. We continued to pay for both car loans and the mortgage on our first property. Had never been late on any of those...in fact, had only been late on the mortgage for the second property, and eventually, the two credit cards we opened in an attempt to keep that property above water while it was on the market.
Summer of 2009: Cash for Clunkers rolls out! Well...we were driving a clunker alright. A 1987 GMC Vandura Conversion van. You see...in the midst of all of this, my husband and I had three more children, bringing our grand total to four. In 2008, when our third child was born, we no longer had enough space in our car to fit everybody. A friend gave us this old van but it was really rundown. So we figured our credit should be rebuilt sufficiently enough...I had been monitoring our scores which were in the high 600 range. We applied for a car loan with a local credit union that we had done some business with and were declined on the basis that we hadn't rebuilt our credit. I questioned how that could be when we had paid off two vehicle loans and were making on-time regular payments to our mortgage. Turns out, one of those vehicle loans and the mortgage were reporting as IIB and hurting our credit, not helping it.
--Livid, I came on here to find out what to do...learned about reaffirmation and was told by several folks not to go that route. I couldn't understand why. We felt as though we really couldn't go anywhere else to live...the loan would continue to damage our credit scores for years to come if we didn't reaffirm, etc. I hired an attorney to reopen the bankruptcy and have the mortgage reaffirmed. Luckily, the process took forever and in the meantime, we learned a few more things and decided to cancel
March 2010: I was working a part-time evening job, saving enough money so we could purchase a new van. This was incredibly difficult on our family...my husband would work a full day and come home and take over with the kids while I'd go off to work until late at night. So we finally had enough saved, bought a new van (finally finding a credit union that would finance the rest of the cost of the van) and shortly after, I left my job.
April 2010: I start hearing about the HAMP program and thinking maybe a modification would be a good idea for us. Our mortgage payment was huge, despite living in a multifamily home in a crummy neighborhood, in an apartment of 700 sq ft (FAR too small for our family of six). We were making it every month, and able to continue to do so, but it was really really tight and it was only a matter of losing a tenant or otherwise, that would put us over budget. I applied with Citimortgage and for four months was strung along, promised weekly that within another week we'd be on a trial plan, etc. The promised modified payment was about $700 a month less than we were paying.
August 2010: Citimortgage denies the HAMP mod and an in-house mod on the basis that we didn't qualify because we'd never been late on the mortgage and therefore were not at risk of default. Oh and we had too much in liquid assets (most of which was money that's not even hours...tenant security deposits, our kids' accounts, and a mortage payment to them that was waiting to clear).
--At the same time...we received notice from Citimortgage that our PITI was going up about $200 a month because our escrow was short...it was short because Citi paid a year of property taxes up front instead of quarterly. Awesome!
--At the same time as well, our 3rd floor tenant gave her notice for Sept 1st.
The writing was on the wall...by the end of the year, our budget would be broke and we would not be able to make the mortgage payment in full. Every spring we receive a large tax return, but it would be too late by the time it came.
We talked about it and decided to take things into our own hands and do this on our timing. I did a lot of research, including using the BK forums to research what everything meant for us. Learned that we had no legal liability to the loan and that it wouldn't affect our credit.
And so we stopped paying the mortgage. And we canceled the reaffirmation. Our hope was that Citi would modify the mortgage after we defaulted. In the meantime, we began to sock away the rental income/mortgage payment. And to be honest...we enjoyed life a little too. I replaced my 8 yr old, dying laptop. We had a nice Christmas for the kids, etc. Nothing extravagant...nothing over the top...but man, it sure was nice to be able to buy the kids christmas toys without having to stress about how much it cost. Criticize me if you will...think ill of me for defaulting on an obligation and then enjoying the freedom of not paying the mortgage...but man, after years of scrimping and squeezing every single penny, we enjoyed this past holiday season. A lot.
In the meantime...Citi transferred our loan to LBPS. We didn't hear anything from either bank for several months.
And then something interesting happened...my husband and I began to talk about using the money we were saving to buy a single family home. And we began to research if that was even possible. We quickly learned that we still couldn't afford a home in our state and so we began to think about maybe moving out of state to a more affordable region. We figured we'd stay in RI for however long it took them to foreclose (or modify). We figured we'd have about 18 months and could save quite a bit in that time...and then we'd look for a job for him elsewhere.
Well wouldn't you know...last Fall, we found a job for him a lot sooner than we expected.
So...as this is getting way too long...and to get to the good stuff...
My husband accepted a job in western, rural NY in January. We knew he was going to be offered the job right after Christmas and began to research homes and lending possibilities right away. Much to our dismay, we couldn't get funding through FHA or really any conventional lender. As soon as they realized we still had the property in RI, they wanted to know what the status of it was...and although we had no legal liability to the loan, the fact that it was in default disqualified us from most lending situations.
And then somebody mentioned USDA Rural Development. In January, I sent out an email to a supervisor at USDA's NY office. A week later, I hadn't heard back, so I sent another email to a different supervisor. I explained everything. I wanted to know if we would qualify for a loan even with all of the information. I read in their underwriting handbook and thought that we would qualify for an exception to the credit-worthy aspect.
That supervisor and I spoke via email for some time...and she brought up several things that I would need to take care of before we would be able to be approved. One...she was concerned that the rental income would put us above income eligibility. I did the numbers and felt that we should be fine in that regard, as long as my husband didn't work much OT at his new job. Moreover, I read on the USDA website for income eligibility that rental income should be calculated minus expenses based on Schedule E from the tax return. As our schedule E shows negative income, I wasn't concerned.
The next issue...a borrower for a USDA loan cannot be on the title of another property. So we filed a quit-claim to remove him from the title. Now...he was free of the property, except for his name being on the mortgage...but that didn't matter as it was discharged.
The supervisor looked over a tri-merge credit report I had provided from our FHA attempts and everything looked good. We were free to proceed.
We moved in early February and my husband started his new job. After four weeks (he needed four weeks' worth of stubs) we applied for a loan and held our breath. We continued to look at and put offers in on properties. I was about 95% certain that we would be approved. My only concern was what would happen if our property in RI foreclosed in the middle of this process.
I HAD started to receive some communication from LBPS, btw. In March, they sent a notice of acceleration. We contacted them to see about attempting a mod...1) to stall a foreclosure, and 2) we might actually want to keep that house, if they'll modify the payment low enough that it pays for itself. We're still in the modification process with them.
A few weeks ago, we put an offer in on a house here in NY. Forgive me for boasting, but after spending several years squeezed into 700 sq ft with four small children, a dog and a husband, I can't help myself. This is a 3500 sq ft newly renovated home, in need of some finishing touches. 3500 sq ft!!!!!! And it's only 120k! ONLY 120k!!!!!!
At the same time as we put our offer in (and it was accepted), we received word that our loan was heading to the underwriter for final determination of eligibility. We held our breath and prayed hard. They had until May 1st to make a decision. A few days later, I received a phone call from the supervisor I had been corresponding with previously. She took over our file because she knew our situation was a bit unique from any other loan situations they had encountered before.
She had devastating news though. We were over income. OVER INCOME?!?! Come to find out, they were counting our rental income in full AND, because my husband had worked some OT, they had contacted the HR for his company to determine if such OT was common and HR confirmed that it was. These two factors put us over income.
While I was on the phone with her, I pulled up their website and looked for the income eligibility tool. I walked her through it and showed her where I had found that it said rental income was to be calculated using a specific formula that they hadn't applied (75% of the income was counted and then that amount was subtracted from the PITI payment). She said she'd never seen that before...and that it wasn't in their regulations. She promised to look into it and get back to me.
A few minutes later, she called me back...they were going to allow the 75% calculation, but couldn't deduct the PITI payment because we weren't paying the PITI. This new calculation put us into income eligibility but not for the county where our contracted house is. We were still a bit over.
So I asked her to reconsider the OT...I pointed out that the HR didn't really have a clue what the OT was for these other employee's as the HR is not even in the same state and it's a national company. I told her there are two other guys out and they're hiring a 3rd guy. I asked her if she could speak with the plant manager to confirm that the OT was unusual and therefore, further deduct the income. She promised to look into it.
Well it was a very long weekend for us but this past monday, she called back and confirmed that she was going to be able to drop the OT income as my husband's boss verified the OT was unusual.
We were now income eligibile for the county where our soon to be new home is located. And as my husband's mid-score is 642, and therefore above the 640 required for automatic underwriting as far as credit worthiness...we have cleared the approval hurdle!
And we are now officially approved through USDA for financing. The next step is to actually get funding...and from what I hear, they're running out of money. But we'll cross that bridge when we get to it. For now...we're savoring the knowledge that we are finally going to own a single family home. And it's going to be affordable for us. Finally!
Oh...and remember that first supervisor at USDA that I had emailed and had never gotten back to me? About a month after that email, she finally did write me back and promptly informed me that we would, under no circumstance, qualify for a USDA loan because good credit is crucial for approval and with a loan in default, we certainly would not qualify.
There's a huge difference between this first supervisor and the second. You know what it is? The second supervisor genuinely wanted to help us. She did everything she could to legally make it work for us. She didn't give up, as we didn't give up.
The moral? Don't give up...and find somebody to help you that won't give up either. It CAN be done. Research, research, research. Find out everything you can...network. Don't give up!
I know this is long...and I'll be shocked if anybody actually reads the whole thing...mostly, it felt good to write everything out...lol. But if this helps somebody else get through these difficult times and gives somebody hope...it's worth it. Good luck!
The background timeline:
2003: My soon to be husband and I purchased our first home...a multifamily. Our intent was to reside in the property, rent out the other units, renovate the entire place and then either sell or refinance, take the profits and buy a single family (which were incredibly too expensive for us).
2005: That multifamily home had already increased quite a bit in value. We refinanced it at 80% LTV, cashing out about 20k in equity, intending to use some of that as a 3% down payment for an FHA home on a second property, also a multifamily.
--Turns out, we couldn't use FHA (I don't remember why, we've gone through a lot...lol).
--Our 20k was not enough of a down payment for the property we were interested in. But our mortgage broker...the son of a very good, long time and much trusted family friend, was able to finance us with an 80/20 loan. We balked at the high rates and subsequent high payment. But going in, we knew the house was appraising for quite a bit higher than we were purchasing it for. The mortgage broker told us we could refinance in six months at less than 80% LTV, thus dropping the rate and payment substantially.
--From the very day we closed on that property, we had tenant issue after tenant issue at the new house. And for that matter, at our first house too.
2006: Our first child is born at the beginning of the year. Tenant issues continued. Three evictions, four if you count the crack addict we had living at our first property. Thousands in lost income, damages, legal fees, etc.
--Six months after we bought the second house, we sought to refinance. Our mortgage broker informed us he couldn't actually do that.
--We immediately put the second house on the market. The market was already beginning to crumble and the house simply would not sell. Offers came in, sure...but they were tens of thousands of dollars less than what we owed.
--We held on for nine months...paying everything on time. But it soon became apparent that we couldn't continue like that...our 20k in cashed out equity was gone. We held out hope that the property would sell...it never did.
Fall of 2006: We anticipated a foreclosure on the second property and filed a chapter 7 for relief from what would be a sure lien on our first property for the delinquency on the second property.
April of 2007: Our bankruptcy was discharged. Included was everything. We hadn't wanted everything included. We had thought it was clear to our attorney that we *only* wanted the debt pertaining to the second property to be disposed of. We didn't understand that debts we wished to keep would need to be reaffirmed. In fact, we didn't even know that the other debts (two car loans and our mortgage for the first property) were even discharged. This is solely my fault. We were in such a fog, I never picked up on that. I knew that everything had to be included, but I assumed the debts we wanted to keep just woudn't be discharged.
2007-2009: We set out to get back on our feet, lick our wounds and rebuild our credit. We continued to pay for both car loans and the mortgage on our first property. Had never been late on any of those...in fact, had only been late on the mortgage for the second property, and eventually, the two credit cards we opened in an attempt to keep that property above water while it was on the market.
Summer of 2009: Cash for Clunkers rolls out! Well...we were driving a clunker alright. A 1987 GMC Vandura Conversion van. You see...in the midst of all of this, my husband and I had three more children, bringing our grand total to four. In 2008, when our third child was born, we no longer had enough space in our car to fit everybody. A friend gave us this old van but it was really rundown. So we figured our credit should be rebuilt sufficiently enough...I had been monitoring our scores which were in the high 600 range. We applied for a car loan with a local credit union that we had done some business with and were declined on the basis that we hadn't rebuilt our credit. I questioned how that could be when we had paid off two vehicle loans and were making on-time regular payments to our mortgage. Turns out, one of those vehicle loans and the mortgage were reporting as IIB and hurting our credit, not helping it.
--Livid, I came on here to find out what to do...learned about reaffirmation and was told by several folks not to go that route. I couldn't understand why. We felt as though we really couldn't go anywhere else to live...the loan would continue to damage our credit scores for years to come if we didn't reaffirm, etc. I hired an attorney to reopen the bankruptcy and have the mortgage reaffirmed. Luckily, the process took forever and in the meantime, we learned a few more things and decided to cancel
March 2010: I was working a part-time evening job, saving enough money so we could purchase a new van. This was incredibly difficult on our family...my husband would work a full day and come home and take over with the kids while I'd go off to work until late at night. So we finally had enough saved, bought a new van (finally finding a credit union that would finance the rest of the cost of the van) and shortly after, I left my job.
April 2010: I start hearing about the HAMP program and thinking maybe a modification would be a good idea for us. Our mortgage payment was huge, despite living in a multifamily home in a crummy neighborhood, in an apartment of 700 sq ft (FAR too small for our family of six). We were making it every month, and able to continue to do so, but it was really really tight and it was only a matter of losing a tenant or otherwise, that would put us over budget. I applied with Citimortgage and for four months was strung along, promised weekly that within another week we'd be on a trial plan, etc. The promised modified payment was about $700 a month less than we were paying.
August 2010: Citimortgage denies the HAMP mod and an in-house mod on the basis that we didn't qualify because we'd never been late on the mortgage and therefore were not at risk of default. Oh and we had too much in liquid assets (most of which was money that's not even hours...tenant security deposits, our kids' accounts, and a mortage payment to them that was waiting to clear).
--At the same time...we received notice from Citimortgage that our PITI was going up about $200 a month because our escrow was short...it was short because Citi paid a year of property taxes up front instead of quarterly. Awesome!
--At the same time as well, our 3rd floor tenant gave her notice for Sept 1st.
The writing was on the wall...by the end of the year, our budget would be broke and we would not be able to make the mortgage payment in full. Every spring we receive a large tax return, but it would be too late by the time it came.
We talked about it and decided to take things into our own hands and do this on our timing. I did a lot of research, including using the BK forums to research what everything meant for us. Learned that we had no legal liability to the loan and that it wouldn't affect our credit.
And so we stopped paying the mortgage. And we canceled the reaffirmation. Our hope was that Citi would modify the mortgage after we defaulted. In the meantime, we began to sock away the rental income/mortgage payment. And to be honest...we enjoyed life a little too. I replaced my 8 yr old, dying laptop. We had a nice Christmas for the kids, etc. Nothing extravagant...nothing over the top...but man, it sure was nice to be able to buy the kids christmas toys without having to stress about how much it cost. Criticize me if you will...think ill of me for defaulting on an obligation and then enjoying the freedom of not paying the mortgage...but man, after years of scrimping and squeezing every single penny, we enjoyed this past holiday season. A lot.
In the meantime...Citi transferred our loan to LBPS. We didn't hear anything from either bank for several months.
And then something interesting happened...my husband and I began to talk about using the money we were saving to buy a single family home. And we began to research if that was even possible. We quickly learned that we still couldn't afford a home in our state and so we began to think about maybe moving out of state to a more affordable region. We figured we'd stay in RI for however long it took them to foreclose (or modify). We figured we'd have about 18 months and could save quite a bit in that time...and then we'd look for a job for him elsewhere.
Well wouldn't you know...last Fall, we found a job for him a lot sooner than we expected.
So...as this is getting way too long...and to get to the good stuff...
My husband accepted a job in western, rural NY in January. We knew he was going to be offered the job right after Christmas and began to research homes and lending possibilities right away. Much to our dismay, we couldn't get funding through FHA or really any conventional lender. As soon as they realized we still had the property in RI, they wanted to know what the status of it was...and although we had no legal liability to the loan, the fact that it was in default disqualified us from most lending situations.
And then somebody mentioned USDA Rural Development. In January, I sent out an email to a supervisor at USDA's NY office. A week later, I hadn't heard back, so I sent another email to a different supervisor. I explained everything. I wanted to know if we would qualify for a loan even with all of the information. I read in their underwriting handbook and thought that we would qualify for an exception to the credit-worthy aspect.
That supervisor and I spoke via email for some time...and she brought up several things that I would need to take care of before we would be able to be approved. One...she was concerned that the rental income would put us above income eligibility. I did the numbers and felt that we should be fine in that regard, as long as my husband didn't work much OT at his new job. Moreover, I read on the USDA website for income eligibility that rental income should be calculated minus expenses based on Schedule E from the tax return. As our schedule E shows negative income, I wasn't concerned.
The next issue...a borrower for a USDA loan cannot be on the title of another property. So we filed a quit-claim to remove him from the title. Now...he was free of the property, except for his name being on the mortgage...but that didn't matter as it was discharged.
The supervisor looked over a tri-merge credit report I had provided from our FHA attempts and everything looked good. We were free to proceed.
We moved in early February and my husband started his new job. After four weeks (he needed four weeks' worth of stubs) we applied for a loan and held our breath. We continued to look at and put offers in on properties. I was about 95% certain that we would be approved. My only concern was what would happen if our property in RI foreclosed in the middle of this process.
I HAD started to receive some communication from LBPS, btw. In March, they sent a notice of acceleration. We contacted them to see about attempting a mod...1) to stall a foreclosure, and 2) we might actually want to keep that house, if they'll modify the payment low enough that it pays for itself. We're still in the modification process with them.
A few weeks ago, we put an offer in on a house here in NY. Forgive me for boasting, but after spending several years squeezed into 700 sq ft with four small children, a dog and a husband, I can't help myself. This is a 3500 sq ft newly renovated home, in need of some finishing touches. 3500 sq ft!!!!!! And it's only 120k! ONLY 120k!!!!!!
At the same time as we put our offer in (and it was accepted), we received word that our loan was heading to the underwriter for final determination of eligibility. We held our breath and prayed hard. They had until May 1st to make a decision. A few days later, I received a phone call from the supervisor I had been corresponding with previously. She took over our file because she knew our situation was a bit unique from any other loan situations they had encountered before.
She had devastating news though. We were over income. OVER INCOME?!?! Come to find out, they were counting our rental income in full AND, because my husband had worked some OT, they had contacted the HR for his company to determine if such OT was common and HR confirmed that it was. These two factors put us over income.
While I was on the phone with her, I pulled up their website and looked for the income eligibility tool. I walked her through it and showed her where I had found that it said rental income was to be calculated using a specific formula that they hadn't applied (75% of the income was counted and then that amount was subtracted from the PITI payment). She said she'd never seen that before...and that it wasn't in their regulations. She promised to look into it and get back to me.
A few minutes later, she called me back...they were going to allow the 75% calculation, but couldn't deduct the PITI payment because we weren't paying the PITI. This new calculation put us into income eligibility but not for the county where our contracted house is. We were still a bit over.
So I asked her to reconsider the OT...I pointed out that the HR didn't really have a clue what the OT was for these other employee's as the HR is not even in the same state and it's a national company. I told her there are two other guys out and they're hiring a 3rd guy. I asked her if she could speak with the plant manager to confirm that the OT was unusual and therefore, further deduct the income. She promised to look into it.
Well it was a very long weekend for us but this past monday, she called back and confirmed that she was going to be able to drop the OT income as my husband's boss verified the OT was unusual.
We were now income eligibile for the county where our soon to be new home is located. And as my husband's mid-score is 642, and therefore above the 640 required for automatic underwriting as far as credit worthiness...we have cleared the approval hurdle!
And we are now officially approved through USDA for financing. The next step is to actually get funding...and from what I hear, they're running out of money. But we'll cross that bridge when we get to it. For now...we're savoring the knowledge that we are finally going to own a single family home. And it's going to be affordable for us. Finally!
Oh...and remember that first supervisor at USDA that I had emailed and had never gotten back to me? About a month after that email, she finally did write me back and promptly informed me that we would, under no circumstance, qualify for a USDA loan because good credit is crucial for approval and with a loan in default, we certainly would not qualify.
There's a huge difference between this first supervisor and the second. You know what it is? The second supervisor genuinely wanted to help us. She did everything she could to legally make it work for us. She didn't give up, as we didn't give up.
The moral? Don't give up...and find somebody to help you that won't give up either. It CAN be done. Research, research, research. Find out everything you can...network. Don't give up!
I know this is long...and I'll be shocked if anybody actually reads the whole thing...mostly, it felt good to write everything out...lol. But if this helps somebody else get through these difficult times and gives somebody hope...it's worth it. Good luck!
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Discharged Ch 7 9/10/08
We sent in the pre-qual and they didn't give us a pre approval. They sent us the full application which we returned w/ all the taxes, income, bank accts etc two weeks ago today. They then asked for the W2s to match our taxes and the full bk paperwork which they got back last Friday. They have already verified with his previous employer, his current employer, our bank and all that, so that is done. I'm assuming since we sent in the $$ for the credit report two weeks ago, they did that also before asking for the additional W2s and bk papers. We also sent all the house info to her. As I said before, it's the ONLY one in our area that will pass inspection and is in our price range under $100k. I'm really wanting to hurry to put in a contract before it is gone and we have to wait to find another. We are a family w/ 3 small kids living in a camper until we get a house found!!! She was a little short (she has be great to work with so far though) when I called to check on Monday, so I am worried about calling again to see if we could put in an offer. I'm really hoping we are already part way through the few week period you are talking about! 
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