Mortgage Discharged in Bankruptcy is NOT Free and Clear?

August 2014 UPDATE:  Fannie Mae has made a significant change is how it views mortgage debt included in Bankruptcy.

Now, if you had a foreclosure, short sale or deed in lieu of foreclosure after the Bankruptcy, the waiting period to buy again begins from the Bankruptcy discharge date, not the subsequent removal of your name from title! – Read More Here >> Fannie Mae Waives Waiting Period After Bankruptcy


Mortgage Discharged Through Bankruptcy

Much of this conversation has taken place in the comments sections of two articles from a few months back – Buy Again After Bankruptcy, Foreclosure and Buy Again One Day Out of Short Sale.

Click Here To Get PRE-APPROVED Now

All of the conversations I have had around this subject are very similar in that:

  • I discharged my mortgage through bankruptcy
  • The home is upside down but I didn’t want to lose it
  • Now I want to buy a new home with a more affordable payment

What it boils down to is that when mortgage debt is discharged through BK, it does not mean that you own the home free and clear, and it doesn’t mean that you’re off the hook for the mortgage.

When mortgage debt is discharged, you are protected against any personal liability should the home foreclose through or after the BK – this essentially means the lender cannot come after you for their losses.

Many times the mortgage debt will show up on the credit report as “included in bankruptcy” with is slightly deceiving because it implies that the debt is no longer owed…which is not the case.

The challenge is that if you decide you do not want to be shackled by  your upside down mortgage at any time in the future, you are still facing either foreclosure or short sale to rid yourself of the home.

Click Here To Get PRE-APPROVED Now

To buy again after bankruptcy you have to wait for 24 months before you can use a FHA loan for the purchase of a new owner occupied home.

Once the bankruptcy is complete, homeowners are still faced with the fact that refinancing into today’s lower rates is not possible due to the fact that the home is upside down.

Renting the home out to buy again after the 24 month bankruptcy wait is also a challenge, as I have detailed in this article: Can I Rent Out My Upside Down Home and Buy Again?

I am keeping a close eye on this, I think that many home owners are in this situation now after filing for bankruptcy a couple of years ago.

I think this is an important conversation to have as there are many families trying to get back on their feet after tough times.his topic?

Do you have any experience or questions around this topic?  Please leave comments and questions below if you have a specific situation you would like to discuss.

 

836 comments
MN2AZ2MN
MN2AZ2MN

Question Scott: We went through a bankruptcy in Feb. 2011 and opted to remain in our home, without reassuming the mortgage, making the required payments. Because of work changes roughly 2 years later, we relocated out of state. In doing this, we contacted my home mortgage company informing them of what would be happening and that we would be turning the keys over to the property. We have recently begun to consider purchasing a home again, since it has been 5 years since the bankruptcy and almost 3 years since we turned the keys over to the mortgage company.


Beginning the pre-approval process we began running the numbers. In running the financials, we found out that the foreclosure process did not actually happen until this last December. (27 months after contacting the mortgage company and turning over the keys). With that I am being told that this date supersedes everything else and that we will have to wait 3 years from this Dec. 2015 date to qualify for a loan. Is this the case? Do we have an recourse or options to get this removed and reverted back to the date we turned the house over?

ScottSchang
ScottSchang moderator

@MN2AZ2MN You are being give the guidelines for buying using a FHA loan, and yes, it's 3 years from the date your name has been removed from title (foreclosure, short sale, deed in lieu).

The good news is, Conventional financing will use the BK discharge date, and you are eligible to buy in 4 years from that date.  As long as your name is removed from title, you may be able to use Conventional financing with as little as 5% down.

What State are you buying in?  I may be able to recommend someone that can help.  If you would like me to try to help, shoot me an email to scott@findmywayhome.com

Hope this helps?

Shortcake21738
Shortcake21738

Question Scott. My mortgage was discharged in chapter 7, eight years ago. I then divorced and did a quit claim deed on property to my ex husband. My ex continued to reside at property. The property is now in foreclosure and I've been listed on the civil suit and receiving notices. How is that when I'm not liable?

ScottSchang
ScottSchang moderator

@Shortcake21738 It sounds like that is a mistake.  I would ask either your BK, or divorce attorney.  You should not be liable for anything

Shortcake21738
Shortcake21738

Thanks. I called the attorney for the lender and they stated that they are required to include me in the case because I'm on the original note but that I'm not liable. Still doesn't seem right.

concern59
concern59

Hello Scott:  My parents and I bought our house in 1988 (joint in tenancy).  We refinance a few times, so  I still have 19 yrs to pay it off.  There is a a home equity loan under my name only.  I filed BK, discharged in November 2014.  I was taking care of them for 3 yrs. Both my parents passed away in 2015.  

The house is listed as discharged in the BK.  Although, unemployed, I been making payments on the first (only late once).  And on the second only paying the interest up to January due to lack of funds.  Second will mature in August 2017.   I want to keep my house and continue living in it.  

Do you see any chances to refinance at a lower rate now?  Or, should I wait until next year before August 2017.  the first mortgage is with Wells Fargo and the second with Bank of America.   Can BofA foreclose due to lack of payments?  There is equity in the home.  I live in California.

Thank you 

ScottSchang
ScottSchang moderator

@concern59 If you stopped making payments on the second mortgage with BofA, you are in default on that mortgage, and would not be able to refinance.  Even though you discharged the mortgages in the BK, you are still responsible for making the payments if your intention is to live in the home.  

Yes, BofA can foreclose on you, and they most likely will at some point if they believe there is enough equity to pay back what's owed to them.

If you do not have the ability to make the payment on the second mortgage, and you have equity, I would seriously consider selling the home, and taking the equity out.  Both Wells Fargo and BofA will have to be paid off, but at least you will still have some money left over.  

If BofA forecloses, they are going to pack so many penalties, legal fees and interest onto their claim that you would be left with much less, if any of the equity you have in the home.

Where in California are you located?  I would consult a real estate agent and at least begin by understanding what your options are.  If you do not have an agent you trust, I may be able to recommend someone.

I know this is kind of a sensitive subject, if you would like to continue this conversation by email, you can reach me at scott@findmywayhome.com

Hope this helps?

concern59
concern59

@ScottSchang @concern59 Thank you for the prompt reply.  I was afraid of the foreclose possibility.  I live in So CA.  And, yes a friend of mine is a Real Estate agent. I will consult him.

bbmeter
bbmeter

I have a home that was discharged in a bankruptcy and foreclosed on in 2008.  It was sold back to the bank in November 2015 and now has been sold to an investor, who is willing to sell it back to me.  I am on the title but not on the mortgage.  My credit is fine since this all happened so long ago.  I have been told by my current loan officer that I am not able to get a mortgage on my former house, but can buy and am approved through his underwriter for any other house.  Does this sound right?  I have been getting different info on this from different mortgage people.

Foznsis
Foznsis

it is a manufactured home so i have been upside down since i bought it i am currently 1 month behind but do not want to get a bill for the amount left on loan. i am going to do a refianace on the home i currently live in but the manufactured home does not ever show up on my credit?

ScottSchang
ScottSchang moderator

@Foznsis If your are 1 month behind, it will affect your ability to refinance, or get financing in the future.  Just because the mortgage does not show up on your credit, does not mean that it does not exist.  If you plan to let the home go, you need to try to do the refinance immediately.  I am a lender in California, and may be able to help.  

The lender has to do a verification of mortgage and will count your payment history against you when you try to refinance your current home.  An inexperienced lender will miss this, and could cause you money and heartache in the future.

Is the loan you are trying to refinance a FHA or Conventional mortgage?  The reason I ask, is that if it is a FHA, you will be automatically downgraded to a manual underwrite, which will cause additional restrictions on your ability to refinance.

You need to fully understand the layers of complication that can occur in your specific situation.  If you miss one more mortgage payment, that may prevent you from getting financing, or refinancing for years to come.

If you would like me to review everything in greater detail, I am happy to do so.  Shoot me an email to scott@findmywayhome.com and we can go from there.

Foznsis
Foznsis

i live in california filed chapter 7 in 1999 and lived in the house for 10 yrs. making payments but does not show up on my credit.  the last 7 yrs. house has been vacant for that time and want to walk away from it. it still doesn't show up on my credit the lender asks everytime i talk to them this is not a bill do you want to keep house? can i walk away and not be responsible for rest of debt and will it have a negative effect on my credit? 

ScottSchang
ScottSchang moderator

@Foznsis No, it will not have a negative impact on your credit.  Are you still current on the home?  Do you have any intentions of buying another home, or refinancing a current home?  "Walking away" could affect your ability to get a mortgage in the future.

The last, and probably the most important question is, do you have equity in the home?  If so, you DO NOT want to walk away.  You are still the owner of the home, and are entitled to any equity in the home, unless you walk away and let the bank take the property.  

You must realize that just because the mortgage was discharged, does not mean that you are not the owner, and entitled to the equity in the home.

kswen
kswen

This absolutely helped! Your site and advice is a blessing for consumers! Thank you so much! That's great news! Thank you again for your assistance!

kswen
kswen

Absolutely!! Thank you so much! That is wonderful news!! I am so thankful I found your site! What a blessing you are to consumers!!

kswen
kswen

My ex husband filed chapter 13 bankruptcy. I did not and have great credit and a good job. In our divorce he signed the title of the house over to me, so I am the sole owner. Unfortunately, his name was still on our mortgage. Now the mortgage company wont directly debit the mortgage anymore, so I am calling in to pay each month. I am capable of making the payments myself. What ramifications, if any, does this have on me? I am not able to refinance in my name because the bank said I do not have 6 consecutive months of alimony payments yet. Once I have that , I will be able to do so. 

1) Does this have any affect on my credit, if I continue to pay the mortgage that is in both of our names?

2) What is the downside of continuing to call in and pay the mortgage that both of our names our on for another 6-8 months until I have the consecutive alimony payments to show the bank so I can refinance and secure my own loan?


Thank you for your assistance!!! 

ScottSchang
ScottSchang moderator

@kswen There is no downside to calling in your payment at all.  There are 2 things you need to be concerned about, first, ownership of the home.  Because your ex signed the title of the house to you, he now has zero ownership in your home, yet, he still has financial responsibility for the mortgage.  Since he included the mortgage in his BK, he's trying to remove his liability for the mortgage as well.

This is all "up-side" for you.  The mortgage is still reporting on your credit, you own the home, and your ex is completely out of the picture.  Unless you have a court order to refinance, there is no hurry to do so.  Your ex has no control over anything that happens to the home, and you are in 100% complete control and ownership of your home, and the situation.

Hope this helps?

Nikki606
Nikki606

We are trying to get a home loan. We filed bankruptcy in 07 on a mobile home and land. The bankruptcy was dismissed but they still have our names on the deed. Can this cost us the house we r trying to get?

ScottSchang
ScottSchang moderator

@Nikki606 You will need to have your name removed from title if the mortgage is in a default status.  If the mortgage is current, you're ok.  I would contact the lender and ask them if they will do a deed in lieu of foreclosure?

Plp
Plp

My daughter is in process of divorce. Her husband wants his name off mortgage. They have a second mortgage on a foreclosed house. How is it possible to refinance. Any way to do this

ScottSchang
ScottSchang moderator

@Plp This is a tricky question.  When was the foreclosure?  Was there a bankruptcy?  He can be relieved from any responsibility for the mortgage through the divorce decree.  He can also be removed from title through a quit claim deed. As a last resort, she may be able to refinance, and take his name off using a portfolio loan, which will have a higher rate and fees.  What State does your daughter live in?

awebbchic
awebbchic

Hi Scott, 


I don't know if you can answer my question but I'll give it a whirl anyway! My husband and I filed Chapter 7 and it was discharged 3/30/14. Long story short, we owned our own company and things went south and bankruptcy was our best option at the time. Initially we were going to reaffirm our home. While in the process of filing bankruptcy we found out some expensive septic work we put into our home 3 years earlier had failed again and it was going to cost us $15-$20K to fix it a second time and it wasn't a guaranteed fix. Due to already investing $10K into the problem and being upside down in our home by $25,000 our lawyer advised us to not reaffirm our home and include it in the bankruptcy. So, we did not reaffirm our home but we continued to make on time payments on our mortgage until 1/2016. Our mortgage was discharged in our bankruptcy. Our mortgage has sent us applications for loan modifications, short sale and deed in lieu of foreclosure since we stopped making payments. We spoke with a real estate agent about selling our home and they said with our septic problems we'd have a hard time selling and if we did get a buyer the offer would probably be so low that the bank would never approve the short sale. Basically, discouraging us from selling. We don't think we would approve for a deed in lieu of foreclosure because we both have jobs now and make decent money even though that wasn't the case when we filed for bankruptcy. So, from where we are standing it looks like foreclosure is our only option...? The bank hasn't started the foreclosure process yet but has sent us letters saying it will be referred to foreclosure if we don't pay soon. It also states that if we wish to abandon the property to contact them to discuss alternatives to foreclosure under which we can surrender the property in exchange for compensation. Do you know if they are referring to deed in lieu of foreclosure or cash for keys? Has there ever been a case when you don't have to qualify for deed in lieu or foreclosure? Does cash for keys help you avoid the foreclosure process? Any advice or thoughts would be appreciated. We're trying to make the best decision under the circumstances. Thanks in advance!

ScottSchang
ScottSchang moderator

@awebbchic Deed in lieu is very similar to a foreclosure except for the fact that it costs the lender significantly less if you cooperate.  That's why they are willing to give you "cash for keys" - it's way less expensive for them.

You should not have to go through an approval process for the Deed in Lieu, they are going to end up with the property one way or another if you abandon the property.  

Because you discharged the debt in BK, they are not legally allowed to pursue you for collection.  I would communicate with them about the cash for keys.  You have nothing to lose at this point, I think you should just talk to them.

I hope this helps?  By the way, you would be able to buy again using conventional financing in 4 years from the discharge of the BK, and ignore the date of the foreclosure, or deed in lieu.

awebbchic
awebbchic

@ScottSchang @awebbchic Yes, that is very helpful! We will call the bank and see if they will consider a Deed in Lieu. Thanks so much for your time and help, much appreciated!!

tcles1
tcles1

Hi Scott,

I have a question. My husband bought a home with his now ex.. He left the home 11 yrs ago and went bankrupt on the home 11 yrs ago as well. We are looking to buy a home of our own. We have been denied a mortgage because it shows  up on his credit report. After this many years should that now go away on his credit report. or can we request it to be removed. We contacted the Lawyer that did the bankruptcy, and they said it should go away and if we get a good mortgage broker we should be able to obtain a mortgage. Our only debt is a car loan for 4,000 dollars. We also have the 20% to put down on a home of $120,000.  Any help would be appreciated and Thank you in advance for your time.  I should also add he does not and has not lived in the home for 11 yrs . His ex has since moved out of the home as well.. she is still on the mortgage.. Mortgage is current... but we worry she will default and ruin his credit. 


ScottSchang
ScottSchang moderator

@tcles1 It sounds to me that you are not getting the full story from your lender of why you do not qualify.  It certainly is not because of the mortgage that was discharged through the bankruptcy.  Most lenders stop reporting the mortgage once the debt is discharged, so that adds to by belief that there's something else.  What could be coming up, is if he is still on title to the home.  If he shows up on title, that could cause an issue for an inexperienced loan officer.  Still, I think your attorney nailed it.  A good lender should be able to point you in the right direction.

If the home was awarded to the ex in the divorce decree, you will want to show that to the lender as part of your application process.  Your husbands bankruptcy petition and discharge should show the lender that the mortgage debt was discharged.  And if for some reason he is still on title, he should do a quit claim and give up all interest in that property.

What State are you trying to buy in?  I might have someone that I can recommend that can help you figure this all out.  Shoot me an email to scott@findmywayhome.com, and I'll make an introduction if I know someone that I trust in your State.

Hope this helps?

danbren1
danbren1

Dear Scott,


I have two home equity loans totaling approximately 145,000 and back real estate taxes of approximately 11,000.00.  These loans were discharged in bankruptcy in 2013 and I have not paid either one in over a year, since I put my house on the market at $159,000 and have made many reductions since to 129,900 and it still has not sold, so it will be a short sale when sold if we can sell! The first loan is with Bank of America. The second with PNC. PNC is threatening foreclosure, and filed a complaint with the court.  I ignored and now not sure how long it will be before they foreclose.  My attorney said to give the keys to Bank of America and walk away. If I do so, is Bank of America liable for the back taxes?  I don't want them coming after me for them. That is why I want to sell, in order to get out from under and start fresh.  What are your recommendations? I thought selling would be cleanest, but after 50 showings still not sold.  Will a foreclosure be on my record?

ScottSchang
ScottSchang moderator

@danbren1 Thank you for your question, unfortunately, I cannot answer your question about the past due property taxes.  That might be a question for a tax or real estate attorney.

As far as the foreclosure or short sale, the answer is no, it cannot hit your credit if the mortgage debts were discharged in your bankruptcy.  The cleanest option is probably the foreclosure, and it's unusual that the second lien holder is initiating it.  The property taxes will probably be paid first, the first lien holder will be paid next, and PNC will get whatever is left over.

Hope this helps?

Dmh613
Dmh613

Scott,

My wife and I used a home equity line of credit to help us buy a business in 2006. We were told by our mortgage rep to come back after 6 months of payments and refinance the loan into the business name. We did all that and the loan was paid off in our name. It shows on my credit report that the loan was paid off. But I know that when the new loan was initiated that our house was used as collateral for the loan.

Unfortunately in 2009 we were had to close the business and ended up filing bankruptcy. We had a terrible lawyer and he never explained that we could reaffirm our mortgage. Also while we were in the process of filing bankruptcy we ended up having a mortgage modification which reduced our payment. But it made if an adjustable rate after 5 years. We have faithfully paid our mortgage with the exception of the three months that we were told not to pay on so we could qualify for the modification. Now 7 years later I want to see if I can refi my mortgage into a fixed rate. But anytime I tell a mortgage rep that I believe there is a lien on the property, they run the other way. Is there any way to refi my mortgage so I get credit for it and to get a fixed rate again?

leezle1971
leezle1971

Hello,


I had a Chapter 7 Bankruptcy that was discharged Oct 1, 2013.  My old home, which the mortgage was included in the Bankruptcy, had subsequently been foreclosed on, deed transfer date of May 24, 2014.  This all happened due to divorce that was final Aug 2013. I am  now remarried, my credit score is around 680 now and going up :).  I am not late with any payments, and have been at my job now for almost four years.  My current husband had a short sale due to his divorce, the short sale happened Aug 2013, I am pretty sure.  His credit score is above 700.  Any options available out there?  We are wanting to look for a house under $150,000 and have the funds to put down 20%. We live in the south suburbs of Chicago.


ScottSchang
ScottSchang moderator

@leezle1971 Hi Lisa, the timeline for being able to buy again will be dictated by the type of financing you are trying to qualify for.  Because yours, and your husband's events happened independently, you are going to be subject to the most recent event, if both of you need to use your income to qualify for the new home.  

Let's start with your timelines - You would be eligible to buy using Conventional financing (with as little as 5% down) 4 years from the discharge of the bankruptcy, this would put you at October 2017.  Using FHA financing, you're looking at 3 years from the foreclosure - May 2017.

For your husband, assuming there was no bankruptcy, he is eligible to buy using Conventional financing Aug 2017, 4 years from the short sale, or August 2016 if using FHA.

If your husband can qualify for an FHA loan using his income alone, I would jump on the August 2016 timeline and get into your home now.  You can always refinance and remove the mortgage insurance next year once you are eligible for Conventional financing.

Hope this helps?  I have a lender friend in your area that is very familiar with these guidelines.  If you shoot me an email to scott@findmywayhome.com, I can make an introduction.

jmt1981
jmt1981

Hey Scott i have been trying to figure out if fha has recently updated any of their guidelines,I am in a situation where i put my home in bankruptcy in 2011 and was able to get a deed in lieu done on the home in October 2014. I have been reading 2 years from bankruptcy  and 3 years from deed in lieu . Does bankruptcy triumph the deed and lieu in this situation? 

ScottSchang
ScottSchang moderator

@jmt1981 FHA guidelines have not been updated, and they will treat the BK and DIL as two separate events unfortunately.  That said, you would be eligible for Conventional financing now, with as little as 5% down payment, as long as the mortgage debt was discharged through the bankruptcy.

What State are you trying to buy in?

jmt1981
jmt1981

@ScottSchang @jmt1981 I live in NJ and I am  trying to buy in NJ. I kinda feel like i am being punished because the deed and lieu took so long to get after the bankruptcy. I tried really hard to get it done earlier, but bank of america would not work with me , i had to wait until my mortgage was sold to another bank, which took 3 years, My mortgage dept was discharged in my bankruptcy, credit is ready to go and dept is low. 

ScottSchang
ScottSchang moderator

@jmt1981 @ScottSchang If your credit is good and your debt is low, you're in perfect shape for Conventional financing.  Let me know if you need help finding a lender that understand the guidelines.  With a DIL after a BK, there are not many lenders that know how to do this, even though it's allowed by Fannie Mae.

jmt1981
jmt1981

@ScottSchang @jmt1981 If you could tell me of a  lender in NJ who you think understands my situation that would be great.

ScottSchang
ScottSchang moderator

@jmt1981 @ScottSchang shoot me an email to scott@findmywayhome.com and I will reach out to some of my contacts and see if they can handle NJ

Barbie tarvin
Barbie tarvin

Scott, my ex and I filed chapter 7 and was discharged in Nov 2012. I have now moved across country and have worked very hard to rebuild my financial world. I have managed to get my credit score up to 720! My issue is this: the title of my home in Nevada is still in my name and the bank has yet to foreclose even after over 3 years. How can I qualify to buy a home on my own when the banks just refuse to foreclose?

ScottSchang
ScottSchang moderator

@Barbie tarvin Hi Barbie, this is such a difficult situation.  The problem is, there bank is not required to foreclose, and I've seen situations similar to this where they are just riding out the market until the home values increase enough for them to recoup more of their losses.

The only thing you can really do is to contact the lender and try to negotiate a deed in lieu of foreclosure, or hire a local real estate agent and list the home for a short sale (if you owe more than it's worth?).

Using conventional financing, you can buy again in November 2016, as long as your name is removed off title by then.

Hope this helps?

ScottSchang
ScottSchang moderator

I am doing a LIVE WEBINAR on Tuesday, April 12th at 6pm PST.  I will be discussing the most up to date guidelines, as well as answering the most common questions, correcting the most common mistakes, and empowering you with the exactly how to talk to your lender about buying after a bankruptcy, foreclosure, short sale or DIL. - CLICK HERE to Register - https://buywisemortgage.leadpages.co/boomerang-webinar/

Taghster
Taghster

Scott, 


I qualify for USDA all day long and 12 times on Sunday.  I have been waiting since 3/1 for a pre-approval.  The first underwriter who reviewed it "didn't feel comfortable making the call on the file".  It was sent to the head UW for review who apparently denied it due to "the time frame of the bankruptcy discharge'.  I am three years and two months post Chapter 7 discharge.  USDA is three years....is this a bank overlay?  My LO said she sent it up again for an exception.  Please help me understand....

ScottSchang
ScottSchang moderator

@Taghster Are you applying for a USDA guaranteed, or USDA direct loan?  I know they are underwritten differently.  I believe you are simply experiencing an inexperienced underwriter that has not encountered this before.  USDA guaranteed guidelines are 3 years.  Was there a mortgage discharged in the BK as well?

Taghster
Taghster

@ScottSchang @Taghster


Scott, 


I am applying for a guaranteed as I make way too much money to qualify for direct.  


My chapter 7 was discharged 1/17/2013 and yes, my mortgage was included.  Ultimately, took the bank a while to foreclose and my name came off the deed in June 2014. 


I have been at the same job for 18 yrs and have a middle score of 687 with not one late since declaring BK. I owe very little debt, have all the right types of credit and my debt to income is great too.  I don't understand how the "time frame of the bankruptcy discharge" is wrong when USDA says its right.  They have not given me the hard no yet but if they do, should I call the state rep to investigate? Where do I go from here? 

ScottSchang
ScottSchang moderator

@Taghster @ScottSchang  The guideline for allowing an underwriter to use the BK date when a foreclosure was included in bankruptcy was updated in December 2014.  I am almost positive that this is their hang up, not the BK date, and I'm sure your lender has not seen many of these transactions. 

If you need supporting documentation, here is a link to the USDA guideline - http://www.rd.usda.gov/files/3555-1chapter10.pdf - you will find the guideline on Page 31, bullet point 4 - hope this helps!

ThisIsUnbelievable
ThisIsUnbelievable

Scott - thanks for maintaining this thread! We have a zombie title on a rental property that was dismissed in a bankruptcy back in 2011. We brought 4 offers to the bank and they rejected them all. They attempted to foreclose but could not sell the property at auction. Now they have dismissed the foreclosure with prejudice. They still hold the Lein and the county sold some of our taxes to Wood Cove who holds a Lein as well. The property is condemned and will be torn down soon. It has sat there for years - literally.

As I understand it - we should however still qualify for conventional financing due to the BK and the change in guidelines in 2014 - yet every lender turns us down due to this property. Other than this issue our credit is fine - we get preamp proved quickly only to stall later in this property.

What can we do? The bank "wants compensation" to release the title. Isn't that an attempt to collect the BK debt? Since the bank cannot foreclose I see no way out of this. Any ideas?

ScottSchang
ScottSchang moderator

@ThisIsUnbelievable Oh boy, this is a little bit of a nightmare.  I can definitely offer an opinion here.  First, under the August 2014 Guideline Change, you would be eligible to buy again due to the waiting period, but ONLY after the lien is removed.  Unfortunately, you cannot be currently in default and buy another home.  As you've discovered, BK protects you against double dinging your credit, and tax liability, but does not affect your ownership, and the responsibility that comes with that ownership.

Under bankruptcy protection laws, the lender is not allowed to harass or pursue you in an attempt to collect a debt discharged through the BK, however, they have every right to ask you to "pay them off" to make the lien go away.  I know it sucks, but they are playing hard-ball here, and your options are limited.

You could hire a real estate attorney to fight the bank, and try to force a resolution, but in the end, I think they have you in a tough spot.  Depending on what they are asking for, you will have to weigh that amount against the cost of hiring an attorney to play a little hard-ball of your own.

Now, I am not an attorney, I'm just a mortgage lender that spends a lot of time trying to understand the guidelines for qualifying for a home after a financial hardship.  This is only my opinion.  

I hope this helps?

ThisIsUnbelievable
ThisIsUnbelievable

It helps - it is just extremely discouraging. It is hard to believe they simply hold all the cards and can block us essentially forever by simply doing nothing.

kaj219
kaj219

This same situation is happening to me right now. The bank chose not to foreclose on our property. It has no running water, as the pipes busted, and the heath dept kicked us out 6 years ago. I'm in the process of buying the home that I've been leasing only to find out that I owe 4 years back city taxes for the old house and the title is in my name. We claimed the house in our bankruptcy...its the reason we filed! I have the income, credit, and down payment, but I'm being blocked from getting a FHA loan....all because the title itself was never taken out of our name. It has been a complete nightmare. We don't even have a lien on the property. I feel like we're destined to never own a home again after we bought a little starter house 11 years ago at the age of 19. Who knew it would still be haunting us

ThisIsUnbelievable
ThisIsUnbelievable

It sucks - I am not sure how it can be legal that they can just hold onto a lien forever to collect a debt that was supposedly dismissed by a court of law. It just seems like a giant loophole that benefits banks at the expense of homeowners.

ThisIsUnbelievable
ThisIsUnbelievable

Just for clarification - when you said we can't be in default and buy a home, you are referring only to getting financing, correct? Is there anything blocking us from trying to buy a home without a bank?

ScottSchang
ScottSchang moderator

@ThisIsUnbelievable I completely and totally agree.  I'll bet my last dollar that they have already taken the write off on their corporate tax returns and benefited from the dismissal of debt.

ScottSchang
ScottSchang moderator

@ThisIsUnbelievable You can certainly buy all cash at any time.  Portfolio lenders may at least require that the lien be removed, but that's completely up to them.  A private lender can institute any requirements they think necessary to protect their investment.  Buy for conventional, FHA or USDA, you're going to need the bank to cooperate.

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