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Mortgage Discharged in Bankruptcy is NOT Free and Clear?

Mortgage Discharged in BKAugust 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


 

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.

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.

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.

562-999-1355

Scott Schang

Branch Manager at Broadview Mortgage Long Beach, California, I am passionate about educating and empowering consumers. Feel free to call, text or email me at (562) 999-1355 or ScottS@broadviewmortgage.com

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601 comments
angelos1986
angelos1986

Hello, So this is my situation. I had a house with someone since 2006. After the housing market crashed the house become underwater. The house is in foreclosure but has not foreclosed. It's been 6 years! The deed is a joint deed. I filed for Ch 7 BK in 2014 and it was discharged. However, my name is still on the deed along with the other person. My goal is to be able to buy a house in a few years, but I know that since I am still on the deed that this is not possible. My question is if I Quitclaim my interest in the property to the other person who is on the deed then I will no longer have any interest in the home. Therefore, would the combination of the BK and the Quitclaim deed allow me to be eligible for a future mortgage? Also want to point out that attempts at short sale and DIL have been unsuccessful. Thank you, Angelo

ScottSchang
ScottSchang moderator

@angelos1986 Hi Angelo, yes, you can quit claim off title to the home as long as the other party agrees.  You would be able to buy relatively quickly after your name has been removed as long your credit, and income are all in good shape.

Hope this helps?

Pami3
Pami3

After my husband lost his job in 2008, we ended up filing bankruptcy (chapter 7) in 2010. Our 1st and 2nd mortgages were discharged (we have the 2nd because we added onto the home in 2006) We wanted to stay in the home which was fine as long as we paid the mortgage. Luckily we were able to modify to lower interest rates (first loan 3.5%, second loan 1% for 40 years) and have managed to make all the payments on time ever since. Even so, my credit rating is still bad since the mortgage payments are not reported to credit bureaus,  plus I missed a couple of smaller credit card payments on occasion. We live paycheck to paycheck. My husband is out of work again. I don't make enough to cover the mortgages on my own. We'd consider selling if we could qualify for a smaller home loan (doubtful), but our home is still upside down by at least 80k. I have one daughter planning to go to college in the fall and another one that needs braces. I don't know what to do. If I stopped making the 2nd mortgage payment, could they foreclose even if the first mortgage is up to date? The first mortgage is 265k, Second is 165k Home is currently worth about 350k (zillow) In 2006 it was worth about 700k! We lost so much equity after the collapse. Could they personally sue me to repay the second mortgage? I hate not to pay my bills, but I also think it's unfair they refused to lower the principle at all. It's not our fault the market crashed. We just invested in our home and never imagined home values would plummet the way they did.

Also, do they have the right to charge me late fees if the payments are paid after the due date but still paid in the month they're due? Any advise would be appreciated. I really would just like to stay in my home of 20 years. Any advice would be appreciated.

Thanks, Pam

jimmymacs
jimmymacs

Hi, I have a few questions.


I walked away from a house 2009 and filed Chapter 7 in 2011 and included the house in the bankruptcy.


I have been renting since, and would like to buy a home. I was told that I was on the Caivrs list, and that I would not be able to get a USDA loan until 3 years after the forclosure. The only problem, is that the forclosure still hasn't gone through, despite multiple attempts through BOA.


1)Is there any way to speed up the foreclosure?


2)Can I get off the Caivrs list faster due to including the Chapter 7?


3)If I did a In lieu of Deed, would that affect the Caivrs situation?


Thanks for the help

JenniferVaughnKerr
JenniferVaughnKerr

Hi! My husband and I had our Ch 7 bankruptcy discharge June 26, 2012. The house was deeded over to an investor on June 19, 2012, removing all our interest in the home. We moved and thought nothing of it. Our FHA loan with BOA was dropped from our credit report - it says included in bk. Now we're applying for new FHA mortgage and the CAIVRS comes up Agency Name: FHA Single Family; Case No.: 093-683208; Case Type: Foreclosure.  BOA has only just started the foreclosure process. What does this mean for us? We're trying to find our eligibility for getting a new FHA loan but no one will talk to us. I would hate to assume it will be 6/26/15 - 3 years after discharge date. If BOA is only now foreclosing, does that mean no claim was paid? And if that is true, what basis will our eligibility date be made on? Geez this stuff is crazy! Thanks so much for your help!

ScottSchang
ScottSchang moderator

@JenniferVaughnKerr Hi Jennifer, when buying using FHA financing, the foreclosure date, and the BK discharge date create separate timelines.  When you say the house was "deeded over to an investor", does that mean that it was foreclosed?  If you simply signed the deed over to an investor, but you were still on the lien, I understand the issue.  It might be easier to call me to discuss - 714-336-8286

beanwald
beanwald

Hi I have a very complicated situation. Our home we purchased in 2006 for 62000 the servicer Nation Star says we owe 140000 now. We filed suit on BOA and Desutche Bank for wrongful foreclosure. In the middle of the law suit BOA sold to Nation Star. Desutche bank is still the note holder. Our case was dismissed without prejudice. Due to neither BOA or Desutche proving they had right to foreclose. The decision was made in September 2013. As of today at the court house in the recorders records shows boa balance zero. In the clerk of courts office they cannot find a lien. I talked to an attorney he says walk away file chap 7. I just want an opinion what should we do. By the way we're in Ohio. Thanks so much in advance.

soccergirl2013
soccergirl2013

My husband and I filed chapter 7 and was discharged in 12/2011.  We have remained in the home and have paid the mortgage.  In November of last year, my husband was diagnosed with Stage 3 colon cancer and will be out of work for 12-16 months as he does chemo and regains his strength after chemo before he can go back to work.  We have since fallen two months behind on our house note.  I see the mortgage company offers hardships for long term circumstances such as putting the past due at the end and reducing the notes for that time.  My question is with any hardship we take, if any is offered, and we sign off on anything, does that mean we will be reassuming the loan and will go back on our credit report and then we are liable for the debt again since it was discharged in bankruptcy?  Just trying to figure this out because as of now we are not responsible for the difference if the mortgage company sells the home and there is a loss.  My husbands doctors say his recovery is 75% after chemo and he will be able to go back to work so we truly want to keep our home.  Any thoughts? 

perplexedbystander
perplexedbystander

How can a homeowner on the road to foreclosure sell his deed for 10-50k for example and walk away without any mortgage debt/obligation ? And then how can the new deed holder turnaround and quickly sell it at a substantially reduced market rate (for a profit) without saddling the new homeowner with the old debt? 

The three parties involved benefit but the bank(big time), the RE market and industry suffer.


Mystified

ScottSchang
ScottSchang moderator

@perplexedbystander I'm not sure I completely understand the question here.  A homeowner does not have the ability to sell his deed.  If the owner of the home is in default on the mortgage (road to foreclosure), and the bank has a lien against the property, the owner's option are limited to short sale (with bank approval), foreclosure action, or negotiate a deed in lieu of foreclosure with the 1st position lien holder.  

It almost sounds like you are referring to the note market, which occurs when investors buy bulk portfolios of non-performing notes.  These note can be sold to the investor, which can in turn, renegotiate the terms, to make the note perform (receiving on-time payments) and sell that note at a discount, or foreclose on the home and sell it on the open market.

Does this shed light on your question?

bluecypup
bluecypup

I have a bit of a dilemma. Twenty months ago, a joint owner on my house filed for bankruptcy. The mortgage company apparently has stopped reporting the on time payments for this mortgage (Ocwen Mortgage). The bankruptcy wasn't mine, I am not removed from the financial responsibility of this home and can be sued if I walk away from the home. I have no bankruptcy protection and yet I also have no benefit of continuing my mortgage payments in a timely fashion. I am wondering if I have any recourse to force them to report my on time payment to the credit agencies. It is frustrating that they can keep me on the hook for the mortgage amount but not show my compliance with the terms of the loan. I am in Michigan if that matters

ScottSchang
ScottSchang moderator

@bluecypup This is a tough one.  I think you just need to contact the servicing company and request that they continue to report it on your credit.  They cannot list it as discharged through bankruptcy.


CathiW
CathiW

Hi there-  I'm so confused. I'm in California. My husband and I had our bankruptcy discharged in October 2010.  We had a home we were renting out and the home we were living in that show up as discharged through the bankruptcy.  The rental ended up being foreclosed the following year.  We would like to move closer to my mom and I'm so confused as to what to do with the house we are in.  I'm not sure we will get what we owe.  Do we have to pay the difference?  Should we rent it out and what do we need to do with applying for a new mortgage loan if we decide to do that?  The home we are in is only in my name as it was mine prior to us getting married.  The home that foreclosed on was only in his name because it was his prior to us getting married.  He is a veteran, and qualifies for VA....is that the best route?  His credit is good, mine is getting better.  We have great jobs, make good money, pay everything on time.

ScottSchang
ScottSchang moderator

@CathiW  You definitely have options, but I need a little more information before being able to provide you with accurate answers.  As long as your current home is paid on time, and you are not in default on the loan, you can rent it out, or sell it.  It will really depend on how much (if any equity) you have.  There are more options here than I can address in a comment, please feel free to email me your contact information to scotts@broadviewmortgage.com, or call me on my cell phone at 714-336-8286

Wendy Moore
Wendy Moore

I co-own a home that's been in foreclosure since 2010, mortgage was not reaffirmed after Chapter 7 bankruptcy. Everything discharged in 2009. My name remains on deed. Foreclosure being dragged out through NYC court system. Co-owner still lives there, I moved out, now facing prospect of lien being placed on property due to unpaid water bill. Don't want my fledgling credit rating too be affected. What do I do?

ScottSchang
ScottSchang moderator

@Wendy Moore is there any way you can quit claim off title to the home?  Because you included the mortgage in your bankruptcy, the bank cannot ding your credit at all, but the water bill sounds like it needs to be paid.  If the co-owner living in the home is not paying the water bill, you might have to.

paula0401
paula0401

I currently have a mortgage with Ocwen that was discharged during my Chapter 7 bankruptcy in December of 2013.  I wanted to reaffirm the loan and in April of 2014 paid 23,000 to reinstate the loan.  I'm now being told that the loan cannot be reaffirmed and that I will not be credited for any monies paid toward the debt.  What is my best course of action at this point?  Sell the home, keep paying?  It doesn't seem prudent to keep paying on a house that was discharged as part of a Chapter 7 yet I know they can foreclose because there is still a lien on the home.  I have an appointment to meet with a reals estate attorney to discuss best options as I need a place to live and obviously can't qualify for refinancing or a new loan.

ScottSchang
ScottSchang moderator

@paula0401 Hi Paula, there needs to be a clear understanding on exactly what Bankruptcy protection means.  It does not mean that the bank can foreclose on your home at any time - it simply means that IF YOU DEFAULT on the mortgage, they cannot hit your credit again (for late payments), and they cannot come after you for a deficiency judgement if you still owe them money.

You still own the home, and you will continue to own the home as long as you make your mortgage payments.  The fact that it does not report on your credit is not important, and does not affect you at all.  If it was on your credit, your score would only affected if you make your payments on time, or miss payments, it's the same as any other installment loan, like a student loan or car loan.  Not having a mortgage on your credit does not hurt, or help you at all.

Reaffirmation simply means that if you lose the home in the future, you can be sued by the bank.  Since it was included in the BK, you cannot.  

If you like your home, and want to live there - continue to make your payments and enjoy your home.  You may not know it yet, but you are probably pretty lucky that your mortgage was not reaffirmed.

Hope this helps?

If you want your mortgage to show up on your credit, you simply have to refinance it once you're eligible.

2796land
2796land

We've had some time to think since Wells Fargo released the lien on our vacation property back in November which we surrendered in Ch. 7 in 2011.  What we're wondering now is if Wells Fargo implied possession by hiring a maintenance company who changed the lock making the bank responsible for the taxes and HOA fees from 2011 until 2014.  

ScottSchang
ScottSchang moderator

@2796land I am not an attorney, and I would consult one for an accurate answer.  That being said, here's my opinion - As long as you are on title to the property, you are responsible.  The lien is evidence of ownership.  Hope this helps?

1angell18
1angell18

I am in this situation however the bank seems to have bought the house bank which i am uncertain of what it means. We saw that the bank has the house up for sale. How do we know if our names are off the title?

ScottSchang
ScottSchang moderator

@1angell18 title records are public records - you maybe be able to access it online, or worse case scenario is you can go down to the County recorder's office and get a copy for a small fee.  I would start by contacting a real estate agent in the area and asking them if they can find out.  Industry professionals typically have access to public records.  If you send me the address to the property, I can see if your County puts it's records online.  My email is Scotts@broadviewmortgage.com

Mark9999
Mark9999

This suggestion may be of some assistance to people who have a mortgage holder who will not foreclose on their property after a BK. As part of your bankruptcy, make sure you have your lawyer file a motion to Abandon the Property in question. This will relieve you of all financial responsibility for the property after BK. This action will NOT remove you from the title but will protect you from financial threats such as liability if someone is hurt on your former property, etc. In my case, this option wasn't available during my bankruptcy filing but the law has changed and you can now file this motion after the bankruptcy has been finalized. This is what I did. One side benefit of filing this motion is that the reticent mortgage holder finally started foreclosure proceedings. I believe this motion was the catalyst to force the start of the foreclosure process since I no longer had the legal responsibility to maintain the property.

cindi1958
cindi1958

Hi Scott,


Do you know of a lender in the Indianapolis area that will actually follow the new Fannie Mae Guidelines?  I am trying to refinance on my current home (purchased in May 2009) and I keep running into the same scenario.  All of the lenders state that it has to be 7 years from the BK Discharge, even though Fannie Mae states 4 years from the BK Discharge.  I had several rental properties and my own personal residence that were foreclosed on, however all properties were included in the BK (filed in December 2008) and the BK was discharged in June 2009.  It seems that all of the lenders have their own underwriting overlays.  Can you recommend anyone to me that will actually go by the 4 year BK discharge date?

ScottSchang
ScottSchang moderator

@cindi1958 I can find someone to help you - send me your contact information and I will make an introduction - scotts@broadviewmortgage.com

bopeep9999
bopeep9999

Hi Scott:

My husband and I filed Chapter 7, discharged in September, 2009, in MN.  We included a first mortgage with Bank of America, in addition to a HELOC with Fifth Third Bank.  Neither mortgage was reaffirmed, house is underwater.

I made the mistake of "doing the right thing" and paying Fifth Third Bank for three years for the HELOC.  At the time I was trying to refinance the first mortgage, and nobody would assist us due to the bankruptcy.

Fast forward to January, 2015.  I quit paying Bank of America in October, 2014, as we decided we need to move on with our lives, as this house will never be worth what was originally owed.  Basically, a $50k debt will be forgiven by Fifth Third Bank; all I need to do is move out!

I owe BOA $154k, and the house could probably sell for about $160k-$170k.  If I have anything left after trying to sell, would Fifth Third Bank get the equity?  I understand they still have the lien, so would they receive any excess I have left after I pay off BOA?. 

Bank of America is looking into a “Deed in Lieu,” but I can change my mind according to their paperwork.Would a DIL be beneficial to us? BOA said they would contact the HELOC for negotiation on that lien release for us.

Trying to decide if we should short sale, contact the second for a lien release ourselves, or let it go into foreclosure.  I have a place to live beginning in June, 2015, as a rental.

If we do decide on the DIL, when would I qualify for financing on a future home?  I understand if I short sale or DIL, there are separate timeframes. 

Thank you for any insight.  Very interesting forum.

ScottSchang
ScottSchang moderator

@bopeep9999 Thank you for such great detail, It makes it easier to understand all aspects of your situation.

If both mortgages were discharged in your BK, then the last thing to do is to get those liens released.  If I were advising a friend or a relative in a similar situation, I would recommend that you take B of A's offer to do the DIL.  They will naturally work with the second lien holder because as the first lien holder, once they take the home back, the second lien is extinguished.

Since both mortgage were included in your BK, you do not have to worry about it affecting your credit, or the lenders coming after you for a deficiency judgement because you owe more than the home is worth, you're protected by the BK law.

As far was "when" you can buy again, that depends on what type of financing you are applying for.  If you apply for a conventional loan, you are eligible to buy again 1 day after your name is removed from title of the home, once the DIL is completed.  Conventional guidelines allow you to buy again 4 years from the discharge of a BK, if the mortgage debt is discharged through the BK, AND if the home is out of your name.  

If you applying for a FHA mortgage, there is a 3 year wait from the date your name comes off title of the home. If you are eligible for a VA home loan, that wait is 2 years.

Hope this helps?

bopeep9999
bopeep9999

Thanks for your quick response!

I appreciate you listing the wait time for a new mortgage in the future. I won't have enough money saved yet for conventional, so will continue saving while I rent. My rent will be $300 less than I was paying BOA, so plan on putting that $300 aside monthly. Thanks again.

ScottSchang
ScottSchang moderator

@bopeep9999 Conventional financing actually allows a lower down payment than FHA - 3% for Conventional, 3.5% for FHA.  Saving your money for a bigger down payment is a great strategy - Good luck!

bopeep9999
bopeep9999

I thought I needed 10-20% for conventional loan down payment. 3% is not much at all. Thanks again ffor your guidance. Very helpful.

matyvin
matyvin

I was discharged from chapter 7 BK in 2012, the house was included in the discharge. We tried to apply for a VA loan but came up on the CAIVRS list. We just found out the house is now just going to auction on Feb.13. Is there anyway we could still get the VA loan? Chase said we have no financial responsibility towards the house, and our bankruptcy lawyer is writing a letter stating this. We live in N.C and the house is in N.Y. thank you for any help in this matter. Also, the house was a FHA  loan.

ScottSchang
ScottSchang moderator

@matyvin Unfortunately, even though you do not have any financial responsibility towards the house in terms of tax liability, or the creditor having the ability to come after you, you do still own the home.  You would need to have your name off title for 2 years before being eligible to apply for VA financing.  The BK, and the Foreclosure are two completely separate events, and have two separate timelines.

matyvin
matyvin

@ScottSchang @matyvin thanks for your quick response, I just wish the loan officer ran the CAIVRS  report before we went through all of this and put out so much money for inspections. It's so not fair that Chase held onto this house so long without doing anything with it. 

ScottSchang
ScottSchang moderator

@matyvin @ScottSchang I couldn't agree with you more.  Your loan officer should have been able to identify this from day 1.  That's a crime in my eyes equal to Chase not foreclosing.  We're on the tail end of all this chaos, and I wouldn't be surprised if you are able to buy sooner than 2 years with the way guidelines are loosing up around homes included in BK.

If you haven't already subscribed to my blog, do so in the upper right corner.  If there's a guideline change around VA, I'm going to write about it.

Good luck, and thank you for your service to our Country.

reklawty
reklawty

I was discharged from ch 13 BK in 2013. I had three houses. I reaffirmed my primary residence.  I included the other two houses in the BK. One of the houses forclosed. I have since paid cash for another rental property. Is it possible to obtain a mortgage to purchase another rental.

ScottSchang
ScottSchang moderator

@reklawty Fannie Mae would require that you wait 7 years from the foreclosure date, and 2 years from discharge date of the Chapter 13.  Both timelines are in affect, and the longest of the two waiting periods would be enforced.

Hope this helps?

hunter11
hunter11

Scott I have a question.. I live in Pa. and we just received our chapter 13 discharge last July we never surrendered our home and stopped paying two years ago because it was 80,000 upside down with two mortgages. The bank now wants to foreclose are we liable for anything besides trying to clear titles? Im so confused my lawyer claims we are not but the bank says yes. Please help. thanks again Steve

ScottSchang
ScottSchang moderator

@hunter11 Steve, I am not an attorney, I am a lender that specializes in helping folks buy after financial hardship like BK, or foreclosure.  In my experience, mortgage debt discharged through bankruptcy falls under bankruptcy protection laws which state that a creditor cannot "double ding" you for the subsequent loss of your home if you've already been deemed insolvent by a federal bankruptcy court.

I am not as familiar with Chapter 13 rules as I am with Chapter 7, so this is where my input may fall short.  I would think that the answer would lie in the how the CH 13 was structured, and how the mortgage debt was dealt with.  If the mortgage debt was fully discharged, then I don't think you are speaking to the right person at the bank.  If your intention with the CH 13 was to retain the home and restructure the loan so that you can continue to make payments, then your lender might be right.

I am inclined to follow the advice of a bankruptcy attorney.  If you are not confident in your attorney's opinion, I would seek the opinion of a different BK attorney - have them review your paperwork.

From the perspective of a lender, if you are on title to the home, you are the owner of the home and responsible for all taxes, costs and liens against the property.  If you have stopped making payments on the home, the lender has the right to foreclose on the home in an attempt to recuperate their losses.

In order for you to be in a position to buy a home in the future, you will definitely need to be off title.

Hope this helps?

retger1
retger1

My 1st and 2nd mortgages were discharged in bankruptcy in 2010. I live in Minnesota and am in the process of getting divorced and am trying to weigh my options relating to keeping the house. The estimated tax assessment of the house for 2015 is 185K the mortgages total 196K. I am uncertain about the exact value of the house, but I believe 185K is likely on the high-end. Both lenders appear to be willing to refinance the loan without me reaffirming the liability and extending the period back to 30yrs. They have stated that they cannot state for certain whether they will or will not unless the other party (stbx) signs a quit claim deed or her name is removed from the title through divorce. The divorce should be final within the next couple months, but I am uncertain if the sheriffs sale will be set before that.


Can anyone share if one of us signing the quit claim would shield either party from any foreclosure costs/fees/taxes etc. as well as if the quit claim prevents the foreclosure from being reported on credit reports?


In addition, I am trying to understand how my rights/claims on the house differ between not reaffirming the mortgages and reaffirming them. The material I have found relating to this subject is confusing and vague.


I would appreciate any advice on the situation. I do not love the house, but love having a house. I also do NOT want to wait 3yrs before being able to own another.

ScottSchang
ScottSchang moderator

@retger1 lots of good questions here, let me see if I can answer as many as I can.  First, if your mortgages were discharged in your bankruptcy then any subsequent loss of the home would not show up on your credit.  Bankruptcy law prevents a creditor from "double dinging" you on debt covered under bankruptcy protection laws.

I also find it very difficult to believe that refinancing your mortgage will not "reaffirm" the debt.  I don't care what anyone tells you, if you take out a new lien against a defaulted property, I don't believe that is covered under your bankruptcy protection - you need to consult a bankruptcy attorney before you even consider this option.

Now, fast forward to a date in the future when your name is removed from title of the home (through foreclosure, short sale, deed in lieu or quit claim) - Fannie Mae guidelines will allow you to be eligible for financing 4 years from the discharge of a BK, which you already are.

Of course, you would still have to meet all other credit qualifying guidelines, but the timeline would not be an issue.  If you are trying to buy again using FHA, that's when you will encounter a 3 year waiting period from the date your name is removed from title IF there is a foreclosure, short sale, or deed in lieu of foreclosure.

The last thing I would like to add here is something we run into a lot.  "Who" is responsible for the home as defined and detailed in the divorce decree, will determine what responsibility you have for the disposition of the property after the divorce.  

If the home is sold as part of the divorce, then you have a clean slate and you are eligible for conventional financing right away.  As long as the home remains in your name, you are responsible.

Hope this helps?

retger1
retger1

@ScottSchang @retger1 

Thank you Scott for the quick and informational response.


I may have used the incorrect term by stating "refinance". I believe the exact wording Fannie Mae (who purchased the 1st mortgage) used was "Modification with lower payment". At which point I was assured I would not be reaffirming the debt. This will be a topic with my lawyers, but I am just trying to get as much info as possible.


Can you describe in a little more detail what "responsible" would mean when you state the "as long as the home remains in your name"?


She is going to sign the quit claim but as the non-final divorce documents currently state, I will be awarded sole occupancy and the house as we allow it to go into foreclosure.


I understand these questions should be handled by my lawyer, but again, I am just trying to gather all information and opinions I can.


I really just want to be certain that if the house is foreclosed upon that I would be able to purchase another, as you stated should be possible given that I meet the criteria.

ScottSchang
ScottSchang moderator

@retger1 "responsible" refers to how a lender will look at qualifying you when you go to buy again.  For example - if the "she" quit claims, so you are sole owner of the home, and a foreclosure occurred on the home while you were the only one on title, then you are the only one that would have to "count" the foreclosure when trying to buy again.

In this example, since the mortgage was discharged in the bankruptcy, all we are really talking about is that "she" could buy using FHA, and not be penalized by the waiting period, because she was not on title at the time the foreclosure occurred.  As long as the divorce decree is clear about who has sole ownership and responsibility for the home.

Yes, given all of the information you've provided, it sounds like you are well within the guidelines to purchase using Conventional financing, with a 10% down payment, 4 years from the discharge date of the BK.

Here is an article I wrote about this specific guideline change that has been in affect since August 16th, 2014 - http://www.findmywayhome.com/home-mortgage-news/fannie-mae-waives-waiting-period-on-foreclosure-after-bankruptcy/

cindi1958
cindi1958

If a borrower meets all of Fannie Mae Guidelines, can a lender still refuse to service the loan?

ScottSchang
ScottSchang moderator

@cindi1958 this is a really good question, and it kind of comes down to what Fannie Mae's role is in the lending industry.  Fannie Mae is NOT a lender, they only created a set of "guidelines" for assessing risk.  If you follow Fannie Mae's guidelines, they will purchase the loan from the lender on the secondary market, allowing the lender to then go out and offer that money to another borrower to purchase, or refinance their home.

Many of Fannie Mae's guidelines are open to interpretation, and the responsibility falls on the lender to decide whether or not they are willing to accept a certain level of risk, using Fannie Mae's guidelines as a reference.

The next challenge is, if a lender chooses to accept a certain level of risk, is there an investor that will purchase that loan on the secondary market - and herein lies the challenge.  If there are few investors that are willing to take the risk, then "street level" lenders do not have the ability to lend if that specific risk is present.

In the case of buying after a hardship, it is considered by many investors to be too high of a risk, or they simply have not yet had enough demand to consider purchasing a loan after a major financial hardship.

In my experience, there are still many investors that do not understand, or choose to not understand some of Fannie Mae's more recent guideline changes regarding bankruptcy, short sale or foreclosure in the borrower's past.

I'm sorry that this is kind of long winded, the simple answer to your question is that lenders have the ability to decide what risks they want to take, and how they want to interpret Fannie Mae's guidelines.

The long answer, is much more complicated than that.

Hope this helps?

cindi1958
cindi1958

Hi Scott,


Does the Fannie Mae "Waiting Period for Mortgage Debt Discharged through Bankruptcy" also  let you refinance or is it just for a new purchase?

Nicki72
Nicki72

Nicki,


My husband and I filed bankruptcy in 2010, and it has been discharged for over three years.  We included our home in the bankruptcy and it shows discharged with a 0 mortgage balance on credit report.  The mortgage company has not foreclosed on the property, and when we called the county auditor we were told that the company may have let the house go, they did not want to foreclose.  We cannot even locate the mortgage company that had the mortgage, we get passed from one company to another, and no one knows about the property.  We dont have a title or anything.  


I know we are responsible for taxes, but we want to purchase a home in a few months.  We were going to try the Fannie Mae Conventional loan or FHA  first time home buyers program.  How does this affect us?  Are we still considered owning the home since it was discharged in bankruptcy?  

MagicAB
MagicAB

If I want to buy a property that was listed in a BK that has been discharged for over 5 years but title has not changed, how do I go about that? Do I just need to get a Authorization to Release information from the owner and take it to the bank asking about a short sale? Keys were turned over, property is vacant with abatement liens piling up.

ScottSchang
ScottSchang moderator

@MagicAB This is such a good question, and the second time i've run into a similar question in the past few days.  It sounds like you're on the right track.  You can certainly try to contact the bank yourself, and depending on who holds the lien, they should be able to point you in the right direction.

The owner of the home will definitely need to be involved.  In the other scenario, similar to this, the bank was requiring the owner to jump through all of the short sale approval hurdles, including completing a thorough financial inquiry and establishing a hardship, before the bank would even consider it.

If the owner of the home you're looking at is willing to cooperate, you certainly have nothing to lose by trying.

I'm not sure if this is helpful at all, but I would love to hear back from you with an update?

Stoney58
Stoney58

@ScottSchang @MagicAB similar to Magic AB. My mortgage was discharged thru Chapter 7. Vacant, I've moved on. Court trustee has his realtor listing house for sale. I've been contacted by a Title company stating the mortgage servicer wants all of the " hurdles" for short sale, hardship letter, income and bank statements from me. If mortgage was discharged and court took over sale of home why do I need to supply all of the information?Shouldn't the  BK be proof enough?

ScottSchang
ScottSchang moderator

@Stoney58 that's interesting.  Not sure why the servicer is asking for short sale information if the home is in the process of being foreclosed.  It's possible that you are dealing with two separate "departments"?  If you didn't initiate the short sale process, then something isn't being communicated accurately.  

Stoney58
Stoney58

@ScottSchang @Stoney58 The BK was filed and discharged before the servicer could foreclose. I'm guessing the court appointed realtor has a buyer for short sale, but Green Tree servicing is insisting on my documentation to continue as typical short sale? Concerned about giving this company post bankruptcy information. The documents sent to me seem like they are more of a reafirming  application than short sale.