Buying a new home / house after ch 7 BK (still on title to old home)

[utahdad]

I was discharged from a chapter 7 BK in 2009. I had two homes that I did NOT re-affirm. However I did a loan modification with both lenders after the BK. I am NOT liable for the loan, and it does not report to credit. It was an agreement that the bank would not foreclose if I choose to make payments.

Since the BK I have had several credit cards, and a car loan for about two years. My credit scores are about 700. So that is not an issue. Both homes had notice of defaults filed, that were "cured" in 2010 when I finished the loan modifications. So the three years after an NOD has passed as well.

Here is my situation. I want to buy another home, and then get rid of the other home either through a short sale, or deeding back to the bank. I am upside down in my primary residence.

As a realtor I had a client in the same situation. Wanted to buy another home, but could not because the lenders (we tried several) found that he still held title to his old home. Even though it was not reporting on his credit, they saw that the address USED to report on his credit, and pulled title. When they saw that he owns it that said that he would need 20% down to buy a new home because he already owns a primary residence, and the new purchase had to be treated as a second home. My opinion is that he is essentially renting from the bank, because he is not legally liable to pay them. But the fact remains that he is on title. The lenders said that they are worried about him buying a new home then walking away from the old house, or short selling it. I feel that is completely bogus. He is not liable to that house AT ALL.

So, in my situation... I want to buy a new home, but I own two in my name right now. They do not report to credit, but title is in my name. I am selling one. But I live in the other one. I cannot sell my primary home, because it is upside down. I cannot short sell it, because the lenders will restart the three year window.

HOW can I buy a new home as a primary residence? I do not have 20% down right now. Can I transfer my home into a trust, and then if / when the lenders pull the ownership they will not see that I have title (because I won't have title)? Are there lenders that will allow me to buy and treat my current home as a home that I am renting? Has anyone had this same problem? What did you do to get around it?

I REALLY need to get into a new home. I do not feel like I own this home I am in. I am over $100,000 upside down, and will never pay it off. I want something that is mine, that I can improve, and stop feeling like a tenant in my own home.

[LadyInTheRed]

My understanding is that banks don't make it easy to buy and bail. As a realtor, I would think you know some mortgage brokers. I'd talk to a couple and see if they have any suggestions. If that isn't helpful, you may have to look for options like seller financing or a lease to purchase contract.

How about moving to the house you can sell, renting out the one you can't and coordinating the sale of the one you can sell with the purchase of a new home? Then you can stop paying on the underwater home and let the bank foreclose.

Or you may just have to wait until you have 20% down. If you can't do that within a couple of years, you could stop paying your mortgage now and save the cash for a down payment. That won't allow you to buy any sooner as you will still have to wait for the bank to foreclose and then for 2 or 3 years to pass. But, at least you won't feel like you are throwing money down the hole.

You don't say how you feel about your home other than that you feel like you are a tenant. If you had equity in your home, would you still want to move?

[btbeme]

Here's the problem... Doing anything except a "traditional sale" on the existing house(s) will show up with flashing lights and a siren during a title search, and that would pretty much torpedo your chances for a low downpayment loan such as an FHA loan. FHA guidelines require a three year period from a "negative" deed transfer such as a short sale or a deed-in-lieu. If a traditional sale is out of the question due to being upside down, you can surrender to the bank and start the three year clock.

As far as a transfer to a trust... I dunno... That could look suspicious to the new bank for the reasons you already outlined regarding your client.

As far as convincing a new bank that your current residence would become a rental... there are a lot of dominoes that need to fall the right way for that to happen. Your new home would have to prove to be an upgrade in lifestyle (newer home, better neighborhood, closer to work, etc) as a starting point. You should have a rental agreement with a renter. There are a lot of "if's" involved... it is not impossible, but I can guarantee that the new mortgage company will be very interested in the disposition of the two home you own, how they were sold, etc.

The mortgage industry runs by The Golden Rule - the people with the gold make the rules. It is sometimes very difficult to convince an underwriter that you are sincere in your efforts. Having an upside-down house with your name on the title is a giant millstone, regardless of your sincerity in trying to do something responsible with it. I mean, after all, your intent is to essentially walk away from it, right? Banks really don't like that, and they will ALWAYS assume the worst.

If I had to guess, I'd say that you are looking at three years from disposal of your upside-down house before you can get a loan, especially an FHA.

[keepsmiling]

Welcome Utahdad!

So many in the same situation....ugh.
Surrendering the house doesn't mean the bank will actually TAKE it. And therein lies the problem. You have to wait until the house is actually out of your name. Which could take a looooong time.

How long would it take to save up the cash to buy a home straight up if you stopped paying your mortgages?
Just a thought...

[utahdad]

Thanks, yes we would still want to move.

There has to be a way to make it work. After the BK I am not legally liable for the home. So it shouldn't matter if I "bail" after I buy a new home. Technically I bailed on it three years ago. Has anyone been able to buy in this situation?

[utahdad]

I don't really need an FHA. I could get a 5% conventional... I may look info the rental idea... If I rent it out, and have a lease in place... The problem is that I want to build a new home. It would be an upgrade from where we are at now, but I can not do a new home, which takes months to complete, but needs the loan up front. Hmmm... Any other ideas?

[keepsmiling]

There is some language in a newish rule about rental homes requiring 30% equity when qualifying... read up a little on 'buy and bail'' scenarios.
Even though you are not technically obligated to the bank since your bk, you still own the home.
If it were easy, everyone would be doing it.
Here's one you might find interesting:

http://realestate.msn.com/blogs/listedblogpost.aspx?post=0495bdc7-3e56-4ce8-a16e-12d08ba27b43

[utahdad]

I believe that the 30% equity (I thought that it was 25% Equity) was to be able to count the income from the rental towards your D/I ratios. I do not need to count the income. I just need to treat my current home as a rental, and my new home as a primary.

[btbeme]

The elephant in the room will be the mortgage lender deciding whether you appear to be attempting a buy and bail. You might be able to convince them otherwise, but I can promise that road is slippery and steep.

[utahdad]

That MSN article is about people who have a legal obligation on their current home. After a BK you do not have a legal obligation on the home. The homeowner "bailed" when the BK happened and the home was not re-affirmed.

The 30% rule (I think it may be a 25% rule) is about counting the income from a rental towards the debt to income ratio of a borrower. I do not need the income to be counted. I just need the home to not be treated a s a primary residence.

[keepsmiling]

Again... it's still a buy and bail. If it were that easy, everyone would be doing it.