Ch 7 and Foreclosure - Seasoning period

[Mizzou13]

I know there are several other topics but here is my recent experience talking to a mortgage broker about our situation. I explained that our Ch 7 was discharged in July 2009 and our rental property was foreclosed November 2009. We did a ride-thru on our primary residence and have always been current.

My questions were:

1. Is the seasoning period based on the discharge date or the foreclosure date?
2. What options do we have on our current home?

Responses:

1. The broker checked with 2 different underwriters they use and both said it would be 2 years for FHA from the discharge date since the foreclosure does not show up on my credit report or as a public record. I made sure the broker asked the underwriters if there were any other means that would be used to check if there was a foreclosure and the answer was no.

2. I was told we could do whatever we wanted since we didn't owe anything on the house as it was IIB. I again asked to confirm whether we could just walk or do a short sale and the answer was neither would affect our ability or restart the seasoning for a new mortgage. They also stated the mortgage payment would not be included in the debt to income ratio so we would not need the necessary income to qualify for both mortgages.

Unfortunately, I was not able to test this by moving forward with the mortgage process as I learned the maximum FHA loan amount was less than what we were looking for. As such, I will wait until July 2013 for the 4-year period on a conventional loan or until I have the necessary cash for the FHA loan.

I have seen multiple posts which disagree with both of the answers I received above, but I wanted to share the information I received.

[debee]

1. Is the seasoning period based on the discharge date or the foreclosure date?
2. What options do we have on our current home?

From HUD 4155.1, Mortgage Credit Analysis for Mortgage Insurance:


1. The seasoning date after chapter 7 bankruptcy discharge is two years. See section g of the current FHA Handbook here.

1. The seasoning date after foreclosure is three years, but can be reduced with extenuating circumstances. The lender may not see the foreclosure on the credit report, but it is a standard question on the loan documents. See section f of the Credit Guidelines section of the FHA manual here.

1. The seasoning date after short sale is three years if borrower was late on any payments within the preceding 12 months, but no wait if borrower's was current at time of short sale. See section l of the Credit Guidelines of the FHA manual here.

2. If you haven't sold your principal residence at the time you apply for a new FHA loan, you either need the income to pay both mortgages or you convert your principal residence into a rental subject to the guidelines. You can read about this aspect here and here.

[tobee43]

I know there are several other topics but here is my recent experience talking to a mortgage broker about our situation. I explained that our Ch 7 was discharged in July 2009 and our rental property was foreclosed November 2009. We did a ride-thru on our primary residence and have always been current.

My questions were:

1. Is the seasoning period based on the discharge date or the foreclosure date?
2. What options do we have on our current home?

Responses:

1. The broker checked with 2 different underwriters they use and both said it would be 2 years for FHA from the discharge date since the foreclosure does not show up on my credit report or as a public record. I made sure the broker asked the underwriters if there were any other means that would be used to check if there was a foreclosure and the answer was no.

2. I was told we could do whatever we wanted since we didn't owe anything on the house as it was IIB. I again asked to confirm whether we could just walk or do a short sale and the answer was neither would affect our ability or restart the seasoning for a new mortgage. They also stated the mortgage payment would not be included in the debt to income ratio so we would not need the necessary income to qualify for both mortgages.

Unfortunately, I was not able to test this by moving forward with the mortgage process as I learned the maximum FHA loan amount was less than what we were looking for. As such, I will wait until July 2013 for the 4-year period on a conventional loan or until I have the necessary cash for the FHA loan.

I have seen multiple posts which disagree with both of the answers I received above, but I wanted to share the information I received.

the PP is taking the info right from the correct site...however, unfortunately, what is written and what happens are two different things. i just wish the "written" guidelines were followed.

i have to say this...we will see more owner financing, when that option is possible, and more land contracts as banks lend less and less.

[debee]

FHA won't insure a loan that doesn't meet it's minimal guidelines. Once you meet the minimums there is flexibility, but not before. What they consider minimum and where flexibility is allowed, is spelled out in the handbook.

If it's not an FHA loan, and if the lender is risking their own money, they can do whatever they want.

[tobee43]

FHA won't insure a loan that doesn't meet it's minimal guidelines. Once you meet the minimums there is flexibility, but not before. What they consider minimum and where flexibility is allowed, is spelled out in the handbook.

If it's not an FHA loan, and if the lender is risking their own money, they can do whatever they want.

i'm certain they won't.

i really do wonder does anyone know anyone who did get an FHA AFTER BK....within the past 2 years...anyone?????

[Sweetpea3829]

To the original poster...the information that you've been given doesn't seem to jive with what most of us have actually experienced. My husband and I were actually in a pretty similar situation as yours. Two homes...both income properties...one of which was also our primary residence. BK7 in 2007...let the second rental property go and did a pay and stay on the first property.

Initially, when I began researching FHA loans last fall, it initially appeared as though we might be able to squeak by. I spoke with lender after lender, mortgage broker after mortgage broker, lawyers, real estate people, etc. You name it...I researched it. Most of the time, I got "Gee, I don't know what will happen" as an answer. Finally, I had a loan officer run a preapproval for us. He was really positive about things...I explained everything to him.

But when it came right down to it...no underwriter for FHA would underwrite us. Actually...it appeared that NOBODY would underwrite us. Why? Because of the ride-through property. We were more than three years out of the date of foreclosure for the second property...but the home we still owned...as it had not been "settled" in foreclosure, nobody would touch us. It didn't matter if the property was current on it's mortgage or not.

And they will find out...they do have ways of knowing. I know this because initially our LO didn't think the foreclosure would show up as a public record, but it did. Moreover...your names would still be on the title for the property. Bankruptcy doesn't remove that. Moreover, when they pull your RMCR, the bankruptcy will show up...both properties will be listed, one will show foreclosed and they'll then ask you about the one that is showing as IIB but isn't yet foreclosed.

Our shot in the dark was USDA and we hit straight and true with that one. We're hoping to close by mid-June. In the meantime...we're in default on the ride through property, seeking a modification, but ultimately, we will probably walk away from it.

The general consensus is that, once our ride through property DOES foreclose...that seasoning period will start all over again as FHA and most lenders require three years from the date of foreclosure.

[tobee43]

sweetpea, that's our understand as well, your time clock begins AFTER the foreclosure.

that's why we found ourselves very lucky to find a 100% owner financing property, as for all we know Chase will never actually foreclose on our property we surrendered. now, we will don't care at all. no closing costs, no banks to deal with...no appraisers.

we just had another home in our sub division sell for 3 times the amount the other homes in this area are selling for, it was also a 100% owner financed property. we were luckier than that person, and paid just a bit more, but ours was a house that really was only 3 years old and one of the larger ones in the area. it was the only way for us, and i think we will see more owner financing and land contracts, at least in florida, were there are many people who own their "second" homes outright. many are from the english and scottish people that are leaving the area in hoards! but it's helping the real estate move a bit.