2 yrs Post BK, still in home, want to buy another <Total Confusion>

[Northforty]

Hi All,

I have searched the forums and I cant find anything that is specific to our situation so I will try and explain...

We currently are still living in our home which was not reaffirmed in our bankruptcy (shows up as included in bk on our CR) and are current on the payments. Being in AZ we are about 50% upside down on our Conventional mortgage and after many conversations with Bank Of America to try and refinance our now 9% loan to get a better rate (they are clueless) we have started to entertain the idea of buying a different home using an FHA mortgage and walking on our current home. My question is can we do this assuming our credit scores and down payment is within guidelines?

The reason I ask I know I have read 2 years post BK or 3 post foreclosure but our foreclosure could take years here if we stop paying now. I have also read that this only applies to FHA mortgages what if our current mortgage is Conventional? Will FHA even ask or care about our current home since its a Non-FHA conventional mortgage that has already been discharged in bk7.

This home is still stinging our pocketbook every month and if we were to buy something else our payments would be reduced by better than 50% even if we had to pay 9% interest.

I have spoken with a few mortgage "specialists" and have gotten no real advice and after reading these forums there must be someone who has gone through this.

Any help or advice is appreciated in advance! Thanks!

[ValleYum]

Google: Buy and Bail

Hopefully, you can find some information pertinent to your situation that way.

Good luck!

[Northforty]

Thanks for the response but that wasn't my question..That said I have read extensively I find that everyones doing it and everyones saying its illegal but no real truth and nobody's saying how they did it...lol

Ahhh if only Bank Of America would just work with us...

[NoMoreCards]

It is only illegal if you commit mortgage fraud, as that is the illegal aspect. There is no reason you couldn't buy on land contract or pay cash. That is completely legal. There are options, you just have to find what works for you.

[ValleYum]

Sorry - I must not have understood what you were asking!

I will still say 'Good Luck' - I think it is going take some creativity to do what you want.

[LadyInTheRed]

This topic has been discussed many times on this board. All reports are that a commercial lender will not lend you money to allow you to buy and bail. We have yet to hear of anyone who was able to do it. Here's one example of a thread discussing it: http://www.bkforum.com/showthread.ph...3Bbuy+and+bail

In which NoMoreCards explained:

Essentually what you want to do is known as a buy & bail. Search the internet using buy & bail as key words, you will see that many people are looking for ways to do just the same thing. The banks are very familiar with the tactics used by people trying to buy and bail, and they are against it. They will ask and want to know what you intend to do with the house you are living in. If you lie to them, that would be mortgage fraud. If you are honest, they will not loan you the money. It is a tough spot many home owners are in.

Depending on your circumstances, you may have more luck with a loan modification. But, you may have to default on the loan first. Even a modification will be a PITA and not guaranty the results you want. I don't think BofA is clueless. I think most of what they do is very intentional and calculated, even when they "lose" modification documents. And I don't tend to be a cynical person.

[LTN6571]

Lets say you are in the process of buying a new home and indeed underwriting asks what you intend to do with your current home that you are BK on...You write a letter saying once you have closed on your new home and are settled in you intend to look into getting a realtor to research a possible sale, and if that fails you will investigate the possibility of converting it to a rental property. Just for arguments sake, lets assume that letter works and your loan is approved, and you are in a new home. Okay, now every realtor you contact and tell that you would like to retain them to sell your home you owe $83,000 on tells you that comparable properties are selling in your neighborhood for $55,000, and renting for $600.00. Your mortgage payment is $900, so renting it will still cost you $300.00 a month on a home you no longer occupy. Since you satisfied the intentions you set forth in your letter to underwriting, and neither scenario is feasible, is it still considered mortgage fraud, and if you are paying your new home as agreed, and let the BK one go into foreclosure, who did you commit fraud on?

[NoMoreCards]

Banks are very well aware of what people are trying to do, as are their underwriters.
There is a better chance of money falling from the sky then this being accepted.

[Flamingo]

No bank is going to give you a mortgage on another house when you are still paying the mortgage on another and have a BK on your credit report, unless you now have outstanding credit and enough income to cover all the bills, mortgage payments, etc. Unless you have a buyer for that house you are still responsible for the mortgage payment and a prospective new lender knows it. Also with an FHA, unless you have 20% down you are subject to PMI for the first five years of the loan which can be a substantial amount of money added to the mortgage payment, and, as in our case when we refinanced at year four of our five year Chapter 13, we had almost $100,000 in equity after refinancing for the amount we needed to buy out of our chapter 13 and to do major house repairs that could not wait until the end of our Plan (we needed to tap into the house to get the funds), even though we had all that equity we still were subject to the PMI (it was stated to us it was due to the BK which made us very high risk) and we had to pay just under $48 per month for five years. That was on only $116,000....it would be much more for a larger mortgage.

You indicate you are struggling to pay the mortgage now....you may end up just as bad or worse if you can actually get a mortgage under all these circumstances. There are settlement costs, moving costs, etc. I too second the posting above about doing whatever you can to modify your present mortgage and stay put until the market becomes better and you are further out from your BK discharge date and have much better credit.

[dspii]

As stated, you will likely not be able to secure another mortgage until your current house is disposed of one way or another. If you give it back or foreclose, you will need to wait 3 years after the deed transfer to qualify for FHA. If you short sell and your current on your mortgage you qualify immediately or if your delinquint you wait 3 years. But good luck getting BoA to allow a short sale if your current....they are numb nuts and they clearly know what they're doing. Unfortunately, the situation you're in is the same as so many others, and their are no easy ways to remove yourself from the situation and better yourself.

[last2cents]

OK - here is what I've found out from my sister - who is a direct endorsement underwriter, and has been for about 15 years.

FHA is now looking at real estate loans discharged in BK as foreclosures - whether a foreclosure has actually occured or not. This means that the three year rule (three years from the foreclosure event) is what applies for qualifying for a new loan, NOT the two years from discharge rule.

If you DID NOT discharge real estate loans in the BK, then the two year rule applies.

If you DID NOT file bankruptcy, and are simply sitting on an underwater home, in order to qualify for a new FHA mortage, you must qualify with BOTH loan payments, and you must have six months PITI for both homes in the bank (over and above your down payment funds), and you must have no late payments on your existing mortgage - period.

YMMV

[LadyInTheRed]

FHA is now looking at real estate loans discharged in BK as foreclosures - whether a foreclosure has actually occured or not. This means that the three year rule (three years from the foreclosure event) is what applies for qualifying for a new loan, NOT the two years from discharge rule.

So, if the loan is discharged in bankruptcy, you don't have to wait for the bank to foreclose before the 3 years starts to run? That's good news.

[last2cents]

Lady - that appears to be the case, although with my luck, the minute I hit that mark, they'll change the rules again

[laurannm]

So, if the loan is discharged in bankruptcy, you don't have to wait for the bank to foreclose before the 3 years starts to run? That's good news.

This is pretty big, as I always thought you had to wait three years after the deed transfer before qualifying for FHA. Has anyone else confirmed that it's actually three years after discharge?

[dspii]

I think it just verify's the variance of underwriter interpretations. All FHA applications go to the Total Scorecard system and based on the results may require manual underwriting. The underwriters work for the banks, not the FHA, they just follow FHA qualification guidelines. As of recent, I cannot find any new modifications or additions to the law that says otherwise, like 3 year post BK if you included a house. Althought, we are talking about the government....insert comment here......

The core of the issue is the market demands and financial status of the home owners. Having a BK and a foreclosure 10-15 years ago was far from a common scenario that plagues our population today. Hell, they had to re-write the laws to include a short sale, because it didn't exist in the recent past. The demise of the housing market generated a new class of future homeowners, unfortunately, the rules aren't as quick to change as the financial status of the people. The new class of homeowners will likely have a BK, short sale or foreclosure in their past. To be 50% underwater or a victim or corporate cuts on a mass scale, as we have seen, is generating a large class of good people that, in many cases, is no fault of their own.......**it Happens.

The construction industry is "Made in the USA" and our economy depends on its diversity, but when the middle class "American Dream" of owning a home, building equity and financial security is gone, this sector will suffer greatly. The middle class is the heartbeat of our economy and when the assets are diminished, BK, foreclosure, short sale are all that remain to unload the vast debt we have in our "American Dream". Not sure the percentages, but it seems as though everyone at my work is walking away from their homes because their asset is now a huge liability and it makes financial sense to cut your losses.

This vast group of future homeowners is financially stable, a decent risk, but the rules of yesterday apply in todays, never seen before economy and broke middle class. Many of whom are broke because most of their assets were in their homes. Remember when real estate was a safe and secure place for our hard earned dollars to build wealth....not talking about the investors....I'm talking about the middle class.