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.

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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.

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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.

 

889 comments
ChiPoo
ChiPoo

Bankruptcy chapter 7 discharged 4 years ago included house, now can't make payments. My Current loan has a loan modification with Making Home Affordable program.  I am currently 1 payment behind.  My husband lost his job 6 months ago and still can't find employment.   How long will a foreclosure process take in texas and what is the process to expect.  My husband is a veteran will that help any?

ScottSchang
ScottSchang moderator

@ChiPoo a non judicial state will leave you at the mercy of the efficiency or urgency of the lender.  It can take as little as 90 days.  I've seen it take years because the lender just doesn't prioritize the foreclosure.

Tough spot to be in, I'm so sorry.  Good luck!

ChiPoo
ChiPoo

There is no equity, market is still upside down here. I do know texas is a non judicial state.

ScottSchang
ScottSchang moderator

@ChiPoo I'm so sorry to hear about your hardship.  I am not familiar with the process timeline in Texas, I live in California.  Typically, once you miss 3 payments (90 days delinquent), you will receive a notice of default from the lender.  Then, depending on your State, the lender may have the right to pursue the foreclose process.  This process can take an additional 30 to 60 days.

I would reach out to your lender now and see if there is any way they can work with you.

Last thought, do you have equity in the home?  If you do, I would sell the home as soon as you can.  If you continue to fall behind on payments, and force the lender to start foreclosure proceedings, they will eat up any equity you may be entitled to with penalties, interest and attorney's fees.

If you have equity, and can sell the home, you will walk away with more money, and only have to pay the lender in full.

Hope this helps?

ChiPoo
ChiPoo

Thank you for the info. Will see if lender will help any

Szwarc
Szwarc

Hi Scott, wondering if you have ever heard of this. I filed bankruptcy and discharged august 2013. I included my BOA home loan in the chapter 7. In March of 2014 I did keys for cash. Then in may of 2014 the house sold and deed was changed. I am 9 days out from closing on a new home when the deed came back with foreclosure on it. I called BOA and they confirmed it was not a foreclosure and they claimed they would fix the deed. Unfortunately the target date for this is 30 days out and that doesn't include anything the recorders office needs to do time wise. My credit and bankruptcy both show the house was included and there is nothing else about foreclosure. Shouldn't my underwriter be able to get around this seeing it's an error? I can't wait because the sellers won't extend the closing date. Any advice?

ScottSchang
ScottSchang moderator

@Szwarc What type of financing are you trying to get approved for?  FHA? Conventional?  

The challenge I see here is that you were never eligible in the first place, and your lender has made a serious mistake by telling you that you are.

FHA financing would allow you to buy again 3 years from the date your name was removed from title, whether it was a foreclosure, short sale, or deed in lieu of foreclosure - that shouldn't matter.  Depending on what date your name was removed from title, you would not be eligible for FHA financing until March or May of 2017.

Using conventional financing, there is a 4 year wait from the discharge of the bankruptcy, and you can ignore any subsequent transfer of title date, as long as the title has been transferred.  Using conventional financing would put you at August 2017.

The last, and probably the only opportunity to save this transaction, would be if the home is located in a USDA eligible area.  If so, USDA follows similar guidelines to conventional by not counting the subsequent deed in lieu (cash for keys), as a second event.  USDA will allow you to buy 3 years from the discharge of the BK, which would put you right at August 2016.

Hope this helps?

AnnaWolfe
AnnaWolfe

My husband and I sold our home, we are in the process of moving the closing date due to the other party's lender found 2 leans against our home that we didnt know about,

we had to re open our chapter 7 bankruptcy, we r currently putting a offer down on a home. My lender stated to me that we would not be able to buy a house now for 2 yrs 1 day. We just got our discharge form our initial bankruptcy from 2014.

So again my question is do I have to wait another 2 yrs and 1 day. We live in Indiana

Thank you in advance

ScottSchang
ScottSchang moderator

@AnnaWolfe Are the liens from mortgages that were included in the bankruptcy?  It sounds to me like your lender does not fully understand the guidelines.

megamom6
megamom6

Some questions.......single mom here, lost job back in December, haven't been able to pay my mortgage. Tried a modification while collecting unemployment, they took until my unemployment ran out to decide and said no since my income was no just rental income (I own a duplex) The options given to me were deed in lieu or short sale. I really need to stay in my house. I am trying very hard to get a job. I guess papers have been filed in court because I keep getting letters from lawyers saying they will help but I have not been served yet. My furnace just broke, a/c isn't working and it is going to be over 100 here next few days. I really need some help with this and any ideas on what I can do to save my house. Otherwise how long would the process take for me to have to move? I am hoping to have a job in the next few weeks and then was going to try to modify my loan again. 


Thank you very much for any help in advance. 

ScottSchang
ScottSchang moderator

@megamom6 If you haven't already, I would consult a bankruptcy attorney.  Filing for bankruptcy will suspend any foreclosure proceedings that the lender may be pursuing.  This will probably buy you 3-6 months to find a job and save the money to catch up on your missed payments.

What State are you in?  If you're in California, I can introduce you to someone that can help.

megamom6
megamom6

I actually claimed bankruptcy over 6 years ago the last time I lost my job and fell behind in payments. I am in the state of Wisconsin

ScottSchang
ScottSchang moderator

@megamom6 I would maybe speak to your attorney about doing it again.  That will buy you the time you need to catch up on the payments hopefully.

Good luck!

LaurenMoniqueMarietta
LaurenMoniqueMarietta

Hi Scott!! Maybe a unique situation. I live in St. Clair Shores, MI, discharged chapter 7 in January 2011. Included my mortgage. I still reside in the home and only pay back taxes. I WANT OUT ( I have a family now and the neighborhood/schools are turning to crap)!! I could stop paying taxes, start the foreclosure process and wait three years to hopefully be approved but...1) Can I rent the home out month-to-month 2) I received a cash offer for the deed of the home (in my name as of 2015)...can I do that? 3) Why do I have to wait 3 years from foreclosure if its already been 2 years+ since bankruptcy? 4) Both MERS files are inactive


Do I have any options?

Thank you




ScottSchang
ScottSchang moderator

@LaurenMoniqueMarietta You definitely have options.  You would qualify for conventional financing with as little as 3% to 5% down payment as soon as your name is removed from title to the home.

Do you still owe more than the home is worth?  If you let the home foreclose, do a short sale, or cash for keys, you would be eligible for Conventional financing.  The 3 year waiting period you are hearing about it if you are trying to buy using a FHA loan.

Hope this helps?

LaurenMoniqueMarietta
LaurenMoniqueMarietta

@ScottSchang @LaurenMoniqueMarietta Thank you Scott. I owe probably 70-80K more than the house would sell for. SO...Would I have to pay the mortgage company back? There is no mortgage note. The Mers are inactive. My name is on the deed. There is no record of a bankruptcy with the county. Or can I just accept this cash offer and transfer the deed?

MarnieBentonPaffenroth
MarnieBentonPaffenroth

Hi Scott!  We also have a unique situation...  Filed 13 in 2012 to get rid of a very upside down home in Hawaii.  Paid all other debts back 100% and are within two months of completion.  The lenders have not foreclosed and we've continued to rent out the home (pay insurance on it, maintain it, and write off expenses and depreciation).  Husband retired from the Air Force and went back to flying for AA - so our income has doubled.  Trying to buy a home again with VA benefits, but we still legally own the old home - which is causing problems!  Have not heard a word about it in over three years (and it takes about two years to foreclose in Hawaii courts, so potentially have a lot more time).  Any thoughts or help you can offer?  We are working with an excellent mortgage broker, but it all seems to be new water to everyone in underwriting, as well as him.

Newmexicon1
Newmexicon1

Hi Scott

I was told that there may be a possibility of getting some kind of credit or limited reimbursement for having paid into the mortgage for 12 years.

Also, how do I go about asking

for that consideration as well as moving costs?

One of my mortgages insisted on sending me papers to apply for modification loan. I told him I had tried last last year but didn't qualify. He insisted.....isn't this a waist of time?

Thankyou.

ScottSchang
ScottSchang moderator

@Newmexicon1 You would only do a modification if your intention is to stay in the home.  I have never heard of a credit or limited reimbursement for having paid into the mortgage for 12 years.  That doesn't mean that it's not true, I just haven't hear of it, now would I have heard of it.

If you're asking the bank to take a loss on the home (it's worth less than what you owe), you can always ask for consideration, but it's completely at their discretion...they certainly are not obligated to pay for your closing costs or credit you for past mortgage payments.  It definitely will not hurt to ask the account person that is handling your deed in lieu of foreclosure!

nlb73
nlb73

Hi!  

My husband and I filed Chapter 7 in 2009.  We were advised the reaffirm our mortgages, as that would be the only way to stay in our house.  I realized later (as I was ignorant to this process) that the first mortgage was not reaffirmed, but the second one was. The second mortgage also is a 30 due in 15 year mortgage with an 9% interest rate (due in 5 years and we are getting nowhere in paying it down).  We have outgrown this house, but owe about $90,000.  Home is only valued at $75,000 and could use some work.  Homes in our neighborhood have not been selling well. We would love to move to a larger home, but do not know if we have any options at this time.  We can afford both mortgages with our incomes, we just need a bigger home.  Are we stuck?  

viking68
viking68

Chapter 7 discharge 10/13.  Staying in home.  Mortgage NOT re-affirmed.  Mortgage was modified about 2 months prior to the unexpected filing.  Means test dictated filing.


Current Lien of $406K on value of ~ $330K.  Of the $406K, $124K is "unpaid second principal balance".  Which is another way of saying that's what the unnamed national bank crammed down for a couple years of not paying during the financial crisis.  


At the point of modification, we had made trial payments, accepted into the 40 year loan and were NOT going to file BK..  Too many things hit too fast and it was inevitable.


Question:  Is there any route to getting a national bank, well you might well know which one, to negotiate a settlement for cash?  We've paid on time and up to date for over 3-1/2 years now.


I think it's despicable they were allowed to and I accepted the $124K cram down my throat, which, was basically interest they didn't earn because we couldn't pay, that now, we are paying interest on interest.


Am I crazy?  Is there a way out?  We're in our 60's and want to stay, but, I'm not paying 25% more than the property is worth.


Help?

ScottSchang
ScottSchang moderator

@viking68  I have a few questions:  Did you originally take out 2 loans, or is the $124k a lien they tacked on the to property to cover what they consider to be paid unpaid interest?  I am assuming that this is a balloon loan at the end of the first loan?  You said you're paying on-time for 3.5 years, is that on the modified first mortgage only? Are your intentions to stay in this home?

I'm not sure I understand your question.  When you ask if a national bank will negotiate a settlement for cash, are you suggesting that you will pay in cash an amount less than what is owed between the $406k and the $124?

viking68
viking68

@ScottSchang @viking68  Guess I could have been more clear.  The loan was modified prior to BK filing.  I accepted the mod -  40 year note with the (now) original $281K principal balance PLUS an additional second principal balance ($124K now) that was "tacked on" was for 37 missed payments, taxes and insurance.  A lot, I know.  It was the times.  So, mortgage lien is in the $406K neighborhood.  Foreclosure was staved off until we could afford the last-ditch mod attempt in February/March 2013.

My annoyance is banks in general being allowed to collect interest on interest.  Of that $124K, a substantial portion is interest.  

My question - what is likelihood they would accept a FMV cash offer on the house?  Is it even worth trying?  We intend to stay in the home and have not missed a payment from the initial trial (March, April, May 2013) to today - even going through Chapter 7, we always paid.  On time.  Bankruptcy was filed June 2013 and discharged October 2013, this mortgage (the mod) was NOT re-affirmed and was discharged.

ScottSchang
ScottSchang moderator

@viking68 Thank you, there are always a lot of moving parts in these situations.  What you are describing is called a "short refinance", which essentially means that your current lender allows you to refinance your current loans for a new loan that is less than what is owed.

As much as it sickens me to say this, the fact that you've been responsible, and made your payment on-time, there is little to no chance that your current lender will consider anything.  At least that's been my experience talking to hundreds, if not thousands of folks in difficult situations.

You're in a tough spot because your good payment history works in your favor now, and if you miss any payments, you lose any benefit you could have received from the payment history.

If you have cash, and you go to the lender and ask them to accept less than what's owed, it's possible that they would talk to you, but finding a lender to offer you a refinance is probably going to be pretty tough.

Now, here's kind of a crazy thing for you to consider.  Should you decide to leave this home, and either default (resulting in foreclosure), short sale (sell to someone else for less than what you owe) or do a deed in lieu of foreclosure, you would be eligible to buy a new home in 4 years from the discharge date of your BK using a conventional mortgage.

If you plan is to stay in the home, you're probably going to be held hostage by your current lender.

I really wish I had more ideas on what options you might have, but I just don't see anything else.

Hope this helps?

viking68
viking68

@ScottSchang @viking68 Thanks for letting me know my suspicions were correct.  Thing is, I want to "do" a lot of stuff to the house, new AC, resurface pool, new lawn, more insulation in attic, etc.  BUT.  If I throw $20K  into improvements, that would just be "lost" money if something catastrophic happens again and I just walk away as the mortgage was discharged.  Lousy position and I do feel held hostage.

AmyB1278
AmyB1278

Hi Scott,


I filed chapter 7 bk in 2012 and did not reaffirm my "mortgage" I was misinformed by my bankrupcy attorney and was not aware that I could continue making payments on the loan. I assumed  (my mistake) that I owned the home free and clear. The debt was discharged. I recently applied for a loan to renovate and add on to the house and was then informed of the deed of trust through Citifinancial.  I called them and after hours of them trying to find my account info was sent to the most unpleasant woman I have ever spoken with. She wouldn't let me get a word in and told me she was going to have to talk with her manager to determine if we could  even reach a settlement agreement. I haven't heard from her since. I called again today and talked with two nice young ladies who gave me an account number and told me that the amount had been "charged off" and sent to a third party who I assume (again) is the lovely Nora. The(the nice one) didn't have my deed of trust in their data bank and requested me to send a copy of my discharge papers and copy of the deed I personally went and got from the chancery. She said she would send this to the 3rd party and request a release of deed. She also asked me multiple times if the deed had citifinancial on the front page The office that I dealt with in 2007 changed names after I filed bk. I requested this information in writing and sent the info after talking to a personal friend (who is also an attorney). My question is am I entitled to the deed free and clear since Citifinancial "charged off" the debt and sent it to a third party?

ScottSchang
ScottSchang moderator

@AmyB1278 Hi Amy, this question is way above my pay grade, and sounds more like a legal question for an attorney that specializes in real estate law.  The only thing I can tell you, is that in most cases, once the debt is discharged through bankruptcy, it is illegal for the lender to pursue you in an attempt to collect, or report any losses by the bank to the IRS as a taxable event for you.  However, all that said, the lien always survives a "discharge".

Your State may have different laws than California, and it is for that reason that I recommend you find an attorney that can offer an informed answer.

I suspect that the lien still exists against the home.  The "mortgage" may belong to a different company than Citifinancial.  It is very common for banks to sell off large bulks of defaulted/discharged debt to companies that just lie in wait until there is either enough equity to foreclose, or until you reach out an try to settle.

I hope this is helpful?

sjp68
sjp68

Hi Scott, 

We are upside down about $50,000 on our mortgage that we've lived in for 12 years. We want to relocate as I just finished graduate school and have a new job and my salary has doubled, but we obviously can not sell this property and it needs so much work that we will never catch up. We have modified the payments a couple times while I was in college and was having a hard time keeping up with the payments. We accumulated $6,000 in credit card debt as well. We have contacted a short sale specialist who has listed it. Nobody has come to view the home in the 3 weeks it's been listed. We have been lowering the price by $10,000 a week. The short sale specialist talked to me today to prepare me in case the lender does not approve the short sale. He has a copy of our debt/income (before my salary doubled). He said it may be best to file bankruptcy if the short sale is not successful.  My question is, that now my salary is doubled, if we file bankruptcy, will it not be approved due to my salary being so much higher now? I am hoping the home sells soon! Thanks so much!

ScottSchang
ScottSchang moderator

@sjp68 It's not a bad idea to speak to a bankruptcy attorney to at least explore your options.  If you lose the home to default, or short sale, the tax liability might be too much for you to afford even with your higher salary.

Also, a bankruptcy attorney would be able to tell you if you would qualify.

Are you current on your mortgage now?  If so, how long have you been current? You may be able to rent out the current home, and buy a new home using a conventional mortgage with as little as 5% down.

There are a lot of possible options, and a lot to consider.  

I'm not sure if this helps?  What State are you trying to buy in?  I might be able to recommend people that can also help.

Newmexicon1
Newmexicon1

Ffmb

My mortgage was included in my bankruptcy about 5 years ago.

It's my understanding that I can walk away and owe nothing. First of all, is that correct? I'm upside side down and no equity to speak of. It's a condo with home owners dues of 198.00 a month. I am behind on these payments by about 1,000.00 . I believe it is part of the mortgage package. Will I have to pay that back? Or will that affect my future credit?

I have not missed a Mortgage payment .

Please advise. Thankyou.

ScottSchang
ScottSchang moderator

@Newmexicon1 Yes, essentially that is true that you can not be held liable for the mortgage in the event of default, because it was discharged through your bankruptcy.

Homeowner's association dues is not part of your mortgage, and will be paid at some point by either the bank, or new buyer of the home.  I have not heard of a homeowners association suing a homeowner for past due association dues, but I think it's possible they could.

Hope this helps?

Newmexicon1
Newmexicon1

Thankyou you so much!

How do I go about starting the foreclosure process?

Do I just call up the bank and tell them I can't pay anymore? How soon do you think I would have to be out of my unit? Could I stay july, and not make any payment? . .....or even longer?

I guess I'm asking how long I could occupy the unit without paying anything?....or what would be the consequences of that?

ScottSchang
ScottSchang moderator

@Newmexicon1 You cannot start the foreclosure process, the bank will foreclose if you stop making your payments and default on the loan.

If you are in a situation where you feel you can no longer keep up with the payments, definitely contact the lender and explain to them your situation.  They may offer you a deed in lieu of foreclosure, which is essentially the same thing, except you cooperate, and they may even give you money to help you move - it's called a "cash for keys" program.

Finally, you still own the condo, you can sell it.  If it sells for less than what you owe, then it is considered a short sale, and the "less than owed" offer would need to be approved by the bank.

Newmexicon1
Newmexicon1

What would be the advantage of doing a short sale?...instead of walking away?

I would then need a real estate agent that costs more money, ect.....would the bank be happier? Would it be better for my credit? I can't keep up with the payments.....im making considerably less money than last year.

I'm just tired of worrying about where the money is going to come from.

ScottSchang
ScottSchang moderator

@Newmexicon1 in the whole scheme of things, there is no difference as far as your credit goes.  It's illegal for a creditor to report something on your credit that has already been discharged. 

A short sale is the best way for you to make sure that you get the lien removed from your name quickly.  Doing a short sale will not cost you money, the bank pays the real estate agent, and they don't get paid until it sells.

What I have seen many times is that someone will "walk away", assuming the bank will just take back the property...but they don't.  The bank keeps the home in your name for years.  And somewhere down the road, maybe 2 to 3 years from now , you decide to buy a smaller home that fits your budget better, because technically you qualify for a new mortgage now.

You may find that the bank never foreclosed.  The bank doesn't have to foreclose, only if they want to sell the home and try to recuperate some of their money.  If you simply walk away, it could be months, or years before the bank forecloses and removes your name from title.  Until your name is removed from title, you own the home, and it will prevent you from buying again in the future.

It's very complicated, I know.  But the best option is to work with the bank to make sure that your name is removed from title quickly and efficiently.

That's my two cents :)

ScottSchang
ScottSchang moderator

You can live in the home as long as you own it.

Newmexicon1
Newmexicon1

Thankyou again.....you are soooo helpful.

If I foreclose....and the bank doesn't remove my name on the title for let's say 6 months.....technically I still own it.. ...is it possible to stay in my unit during that time?. Without paying anymore?

Newmexicon1
Newmexicon1

And I won't be forced out if I don't pay anything?

So, potentially I wouldn't have to worry about getting out immediately. ...and maybe even stayed a coup l e more months without owing anymore?

Happy Father's Day.....if you are a Dad to anyone!

ScottSchang
ScottSchang moderator

@Newmexicon1   You will most certainly be forced out at some point if you default on your mortgage.  I don't like this approach because you put 100% of the control in the hands of the bank.

If you are certain that default is eminent, you would be in much better shape staying in the home, and working with the bank to negotiate a "cash for keys" deed in lieu of foreclosure, or a short sale.  Either of these two options will allow you to accomplish what you are trying to do, and control the timelines for when you will have to move.

Hope this helps?

Newmexicon1
Newmexicon1

Yes, very helpful. Thankyou Scott.

May I contact you after speaking with the bank if things are not clear?

dobbsgretta
dobbsgretta

@ScottSchang @Newmexicon1 What do you do if you have filed bankruptcy and received a discharge and the the bank still will not remove your name from the deed

ScottSchang
ScottSchang moderator

@dobbsgretta there is no obligation for the bank to remove your name from the deed, bankruptcy does not affect your ownership in the property.  If you stopped making your payments, and are currently in default on the mortgage, then the bank has the "right" to foreclose, but not the obligation to do so.

If the time frame for removing the lien is urgent, I would suggest considering a deed in lieu of foreclosure or short sale.  If you do not take a proactive approach to removing the lien, you will just have to wait for the bank to "get around to it".

Hope this helps?

4TAllen
4TAllen

Hi Scott, In 2011 I quit claimed my house to my ex-husband shortly after our divorce. Unfortunately he couldn't refinance it to get my name off the loan and has since let the loan go into default. The house has been vacant all this time, and the bank has refused to do anything with it.

As a result I filed Chapter 7 bankruptcy to be cleared of this debt so I can eventually buy another home. Debt will be discharged July 25, 2016. Can you tell me when I will be eligible for a mortgage loan? To complicate matters, the bank has filed a motion to lift the automatic stay in my bankruptcy so they can continue the foreclosure process which has been going on for five years.
Since I am not on the deed will I be affected if they do actually foreclose before my debt is discharged?
Will I have to wait longer to get a mortgage? Thank you so much.



ScottSchang
ScottSchang moderator

@4TAllen I am not sure if I answered this question through and email, or over the phone, but I want to make sure if anyone has a similar situation that hopefully they can learn from your experience.

Depending on what the divorce decree states, you may not have even file bankruptcy.  If you quit claimed off title in 2011, and your divorce decree clearly stated that you are not responsible for the mortgage, or the home, I have had success financing folks in this situation.  I am not a bankruptcy attorney, so I would trust your attorney's advice, but I would fight lifting the stay, and make them foreclose after the debt has been discharged.

Since you have the Chapter 7 being discharged on July 25th, you will have a waiting period before you are able to qualify for financing again.  The waiting period is determined by the type of financing you are applying for.

If you are trying to buy using a FHA loan, you would be eligible in 2 years from the discharge of the bankruptcy.  VA financing is also 2 years from the BK.  USDA is a 3 year wait, and conventional financing requires a 4 year wait from the discharge.

Hope this helps!



Juju121597
Juju121597

Do all liens and judgements have to be satisfied before a loan modification is approved? I had a 1st loan and a HELOC with State Farm the he lock was discharged in a bankruptcy in 2010 and then went through loan modification process in 2012 but now I'm showing a lien from my HELOC that was discharged

Juju121597
Juju121597

I need to know does all leins and judgements need to be satisfied before a loan mod can be approved ?

ScottSchang
ScottSchang moderator

@Juju121597 Hi there, I am so sorry, it doesn't look like I answered this right away, and I don't recall if you emailed or called me, and we discussed it somewhere other than here.

Unfortunately, I do not know the answer to this question.  A loan modification being offered by your lender is going to follow that lender's guidelines.  If you filed a bankruptcy, you should not have judgements or liens, unless they are tax related?

Were you able to get your question answered already?

Lumirayne
Lumirayne

We filed chapter 7 bankruptcy and were discharged back in 2004.  The house went through foreclosure just after, but we were able to make modified payments and keep the house.  We have been paying on it since then.  We moved out of state two years ago and had a friend that wanted to buy the house from us and has been living there (without paying...), so we continued making payments on it (and our new home) for the past two years.  We can no longer afford them both, he doesn't seem to have any intention of buying, so we stopped making the payments.  The mortgage company sent us paperwork to either do a short sale or a died in lieu on the house.  Should we do either of those or just let it go into foreclosure at this point?  Can they deny us either of the other two options if they think we CAN afford both payments?  Will any of it hurt our credit now?  Thanks!

ScottSchang
ScottSchang moderator

@Lumirayne A short sale or deed in lieu will get you to the same finish line as a foreclosure, except maybe faster.  To default on your mortgage should not be reported to the credit bureaus because the debt is already discharged through the BK.

When you say you were going to sell it to your friend, is there equity in the home?  If there is, you can sell it to anyone, and that would probably be the best of all 3 options.

As far as you, or your credit is concerned, there is no wrong answer.  You just want to get your name off title.

Hope this helps?

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