Foreclosure and Bankruptcy

[rikimaroo]

Hello All,

I did a chapter 7 bankruptcy in 1/2010 was discharged. This included my Mortgage loan on my home.

Immediately after getting my discharge notice I applied for two credit cards and was approved for a $1,200 limit and $450 limit CC. This helped me build credit and my credit score is currently 696 transunion, 711 equifax, 715 experian.

I still live in my house as I am still responsible for the HOA fees and was wondering will the foreclosure when it happens be under our name and also affect our credit score even though we already did a bankruptcy? Should I start searching for a home now before the foreclosure happens if it does affect my score? Usually you have to wait 2 years after BK to even attempt to get a mortgage.

Thanks,
Rikimaroo

[LadyInTheRed]

The foreclosure shouldn't affect your credit score. But, from what i've read on this board, the 2 years for getting a new mortgage will run from the date of foreclosure, not the discharge of your BK. Some have said you have to wait 3 years. I also believe you will have trouble finding a new mortgage even before foreclosure unless you can show that you can afford 2 mortgages. Talk to an experienced mortgage broker to be certain.

There is a Foreclosure subforum in the "before the discharge" forum and a Mortgage After Bankruptcy subforum under "after the discharge" forum. You will find posts in those subforms by people who have been where you are.

[rikimaroo]

Hmm, I don't have any mortgage at the moment though since I discharged that mortgage with the BK. So right now I am the owner of the home because I have not been foreclosed on and been living in the house for 2 years without paying. Since the mortgage was discharge I don't have to pay anything.

So sinceI have not been foreclosed on should I take advantage and just try to purchase another house? From what I read 2 years after a BK to get an FHA loan.

[sh9730]

Your problem is that FHA will not let you OWN two houses at once. And as you say, you do still OWN your current house, even though you arent paying. SO, FHA wont allow that. If you wait until after you get foreclosed on, the situation LadyInRed describes comes into play....2 years after foreclosure....and the foreclosure IS a seperate public record that your lender will find out about....even if it doesnt effect your credit score since the DEBT was discharged.

Only way out is if you could SELL your house for more than you owe before it is foreclosed upon....probably not an option or you wouldnt be doing what your doing.

[btbeme]

On your mortgage application you will be asked whether you have been foreclosed, done a Deed in Lieu, or not met a financial obligation on a mortgage. Truthfully, you could answer "No," but you would immediately be asked to explain the disposition of the mortgage discharged under your Ch 7. In this market, you will not find a single lender who would either: a) see it as an OK situation; or: b) not interpret your answer as a falsehood.

Unfortunately, your best bet is to unload the house via regular sale, short sale, deed in Lieu, or foreclosure. A short sale would be in your best interest, as it shows that you have worked with the bank. Otherwise, a new clock starts ticking after you unload the house, and expect it to take 2 years minimum, 3 years almost for sure, and very likely longer than that before you will pin down a new mortgage.

But then again, I am betting that banks will WANT to start lending again in the future. Who knows - the rules may change in your favor (and mine).

In the interim, enjoy your free rent, bank as much as possible, and expect a two or three year hiatus from a mortgage once you finally do surrender the title on the home in which you currently reside.

[rikimaroo]

Thanks for the replies. So if I sold the house via shortsale, would I have a hard time getting a new home since I didn't get foreclosed on? Is there a time period for that also?

[newbie2]

The requirements for new mortgage financing post short sale may be shorter than post foreclosure, but be prepared to have to jump through hoops and perhaps put a larger amount down. After all, in the lenders eyes, a short sale is still a loan that wasn't fully paid according to the original terms. Your best bet is to talk to a mortgage broker or two and see how they differentiate the 2 events.

[btbeme]

Thanks for the replies. So if I sold the house via shortsale, would I have a hard time getting a new home since I didn't get foreclosed on? Is there a time period for that also?

The common theme among lenders, at least for now, is that a short sale is pretty much the same as a foreclosure or Deed in Lieu. However, a short sale will likely be considered a more positive result as time goes by.

The bigger issue is that lenders and FHA have a "may" rule in place - you "may" qualify for an FHA loan 3 years after a BK, foreclosure, etc. That does not mean that they are obligated to make the loan after that timeframe. They look at the whole picture - income, new credit history, past credit history, etc to determine whether to make the loan. In this sense, having a short sale can - CAN - be viewed as a more positive outcome than a foreclosure, and it may help the overall picture, but the timeframes lenders list are not an absolute.

[rikimaroo]

I just got a car loan for 26k and have 3 credit cards with a 450 limit, 1,200 limit and 1,000 limit to help with my credit score. Do you think by the time I am ready to buy the house even after having 40k+ saved up and looking at buying a house less then 200k would still be a problem even after doing to shortsale? The reason for the shortsale is because the foreclosures are so backed up right now that I have literally been in the house for 2.5 years not paying and I would have to continue to pay my HOA if I left.

[btbeme]

Unless something changes, lenders will not consider a loan for 2-3 years after a short sale. Most will not consider one for longer than that; however, having all of your other ducks in a row MAY help you be closer to the 2-3 year timeframe rather than a longer timeframe.

It all depends. These are hard times for even top-drawer borrowers to get a loan.

[rikimaroo]

So BK extends the time it takes to get a mortgage by 2 years and foreclosure/shortsale adds to that time whenever it happens? That sounds rather ridiculous, our laws are really messed up. Bankruptcy should be the said all be all.

[btbeme]

So BK extends the time it takes to get a mortgage by 2 years and foreclosure/shortsale adds to that time whenever it happens? That sounds rather ridiculous, our laws are really messed up. Bankruptcy should be the said all be all.

Agree, to a point. In a more typical time, non-payment of a mortgage would trigger a rapid and expedient repossession of a home, usually because that home would likely have some equity, or at least be close to breaking even.

Now, non-payment gives the bank an opportunity to hold a shadow inventory without mass foreclosures and without torpedoing its financials, which are already in the toilet. Some day, this massive housing slide will be over, repossessions and foreclosures will be as immediate as the law will allow, and a BK which surrenders a home will be, in effect, pretty much what you describe.

It is just that these are strange and unique times.

And, hey - two years rent-free isn't a bad deal no matter how you slice it. In a few years, when you are ready and able to buy again and a bank agrees to lend you the money, my guess is that housing prices will only have stabilized and not increased dramatically. After all, we have a huge number of vacancies, a second huge load of shadow inventory (such as your home), plus the usual homebuilding which will always continue. Lots of places to live; not a lot of mortgages being given. That adds up to a buyer's market in a few year's time.

[rikimaroo]

What about trying to get a conventional loan instead of an FHA loan. Is it still the same situation?

[btbeme]

Yup. Maybe even more so.

[screentest]

rikimaroo,

Others have hit the nail on the head on this. Conventional lending is even worse than FHA. FHA is probably the most lenient lender as far as down payment(3-5%) credit score (620) and post BK/Foreclosure wait is concerned.(3-years)

A conventional lender will require 20% down and a 5 to 7 year wait after a BK/foreclosure situation.

Unless you have VA benefits (2 yrs) then your only viable option will be to wait out the 3 years after your home forecloses and the lender takes possession and then try for an FHA. Also keep in mind the insurable amounts FHA will lend too are dropping on October 1st so this may also limit what you can spend on a house with FHA.

Good luck

ST