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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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464 comments
Felicia08
Felicia08

My Chapter 7 BK went through last March and I did not reaffirm my loan after BK. I decided to go ahead and leave the house to rent for a while several months ago since the house and maintenance was too much for me as a single mom, knowing that they couldn't come after me for the balance. I recently heard that they are going to sell the home at a foreclosure auction on 9/30, in eight days. They sent me formal notice via certified mail. I just received a letter from a property consultant looking to pay me $ for an interest in the title. Is this something I should do? Are there any caveats to this? I am no longer in the home and have no desire to move back or buy for some time. I am also the only one on the deed.

LisaDF
LisaDF

I live in Michigan and we short sold our home over 2 years ago.  Everyone signed off and we short sold the house to a buyer.  Now Fifth Third Bank is trying to come after us for the amount that they say we owe - they were our 3rd mortgage - home equity line of credit.


Seems odd to me because they signed off...can they do this?

Rjkmom
Rjkmom

My filed chapter 7 bankruptcy a few years ago. I also got divorced during that time frame. My ex wants me to quit claim our investment property to him. The property is upside down. I know I'm not liable for the mortgage but if I'm quit claimed off the property would I still get a 1099 for the debt loss if he short sales property and would I have to pay taxes on this difference?

Mark9999
Mark9999

Just for the record, when a house is foreclosed on, the bank sends a 1099-A  (Acquisition or Abandonment of Secured Property) to the former owner. This is normal even for property declared in a bankruptcy. When filing your 1040 long form, you'll have the opportunity to check this off as included in bankruptcy with no further issues. 


IF the property was used in business (re.g. rental, etc), the situation gets much more complicated. You'll have to file forms 4797 (Sale of Business Property), 8582 (Passive Activity Loss Limitations) and 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness). It's not complicated but you must have access to your previous returns to determine if you had a gain on the sale of the property after taking into account recaptured depreciation and other deductions. If you were seriously underwater to begin with, you shouldn't have any taxes owed. If this all sounds confusing and complicated, go see a tax attorney or CPA.


P.S.  I'm NOT an attorney or CPA.

Mark9999
Mark9999

Hi, I want to clarify something you have stated on this blog. From reading your responses to others, I believe you have stated that 4 years after a Chapter 7 bankruptcy, I can be approved for a conventional mortgage even if my former house title is still in my name. Is that correct?

suzq1411
suzq1411

Soooo confused and annoyed! My Husband and I filed for chapter 7 in 2011 received discharge in 2012. We also did a short sale on our home since BOA kept extending our loan modification process and eventually sent us a foreclosure letter. Short sale was approved and house was sold in 2013. We received a 1099 stating everything was payed off. 2 years later we are trying to use VA loan to purchase again. VA approved the loan but our lender just called us that Nationstar which eventually took over the loan during the short sale process is now saying that we owe 137,000 in late payments and placed in our credit report. Can they do this???

shaunnacarbonell
shaunnacarbonell

I live in Arizona and  chapter 7  bankruptcy was discharged over a year ago. We have remained in the home and continued to pay the mortgage and hoa fees. We now want to relocate and eventually purchase another home in another state. How do I get my name off of the title and how long can we stay in the home without paying the mortgage and hoa fees?

binnstacy
binnstacy

Hi I filed chapter 7.. 4 years ago for two investment properties that i foolishly bought and owed more than the equity. they were discharged and Its been seven years and the banks have not foreclosed on the properties.. A investor suggested to short sale the two properties so they could buy them from the bank... I would like to get rid of the properties and start over...Do you think this is a wise decision to try a shortsale?

dhite08
dhite08

My husband and I filed bankruptcy chapter 7 in February of 2010. It was discharged in May of 2010. I had an adjustable rate mortgage loan through a local bank that I kept through the bankruptcy but never reaffirmed the loan. So, the rate adjusts every so often and I have to sign paperwork for it, but it still doesn't report to the credit bureau. If the payment stops being made I assume it would probably go into foreclosure. If that happens would the foreclosure show up on my credit report and would I be legally responsible for the payment?

chestermeeker
chestermeeker

OK here goes - complicated mess.  But I am engaged and my girlfriend owns a house outright that she wants to put me on deed  BUT before that I have a nighmare situation.

I currently live in Indana for over 2 years - due to ex (Never been married) having a domestic violence order against her and tried to kill me.  I also am a recovering stage 4 cancer survivor.


NY 2001 I foollishly purchased a manufactured home with ex (NEVER married) for 101,000 it IS Jointly titled in Both our names.   I put  up over 50,000 to attached it to property well , custom features etc.  This was secured my 10 acres which was deeded in my ex names


NY Onadaga county has been taxing the property as real property - even though NY doesn't allow  titlte purging.  Taxes were 3 years behind in 2011... Family member paid them for Me - they were in exs sole name and saved the tax auction - I  was fighting for my life and 4 months to live.  When ex tried to kill me (another story).  So, when I finanaly  I had the strength and the TRO I moved in Fall of 2012 as far as I could for protection - Indiana. 


In the meantime - while I had been fighting Cancer - the property fell behind in payments again and again (ex used ALL her money for partying - she has a drinking problem etc)... and was Mad I was dying and couldn't make them solely anymore)  she bounced checks... didn't pay... got deferrals.. and Finally I filed Chapt 7 in Indiana and was discharged of Mortgage in Dec 2013.  I surrendered property - but mortgage company refused to take it..  INSTEAD they allowed her to sign a  mortgage reversal and deferral in MY name also and was granted it in Jan 2014 for 6 months... payments were due to resume in March 2014 - she paid IT late and shorted them $50.  she then Stopped all together again... We had got so many 90 Notice OF default and papers to bring mortgage current was due by Sept 6 to prevent foreclosure.  I got a copy of these since I am Still on Mortgage and Still on Manufactured House title (remember NY titles this with DMV).. she told everyone she was losing home (first time she EVER admitted it) so, I know she was serious and going to let it go into foreclosure..


Lo, and behold ON Aug 15 - She Miraculously comes us will 4,700 to bring mortgage current!  I then was told by someone living in My house - that she told them they would have to get out she had sold the house (this person was going to College) and she had to move end of September.  Remember I am STILL on title of House.. I have NEVER signed a quit claim deed or anything giving away my right to house.  I don't know who bought my property or ANYTHING - the least  I know IS that she has forged my name before and I AM certain she is doing this again.  She doesn't have the intelligence to understand the laws of mortgage fraud... title forgery etc... and IS NOT above doing this to get some $$$ in her pocket - did I mention there IS about 40000 in equity in property?  I believe she sold it to her daughter/new spouse... they are living there with her for last year.. and were NOT married and mysteriously after ALL the years together had to get married and without a couple of weeks - house was sold!  I ALSO believe she is dumb enough to contact one of these mortgage scam artists and believe she is smart enough to scam the scammers!


she and the unknown buyer/scammer (this has NEVER been listed for sale so I know it is a private sale) are up to some Mortgage forgery and probably some Mortgage fraud here... how can someone get a mortgage WITH another persons name on TITLE???: without forging it???  The mortgage company doesn't care a BIT.. I am sure now with the mess she is to deal with they are just want their money However they can get it (yes I called and that is pretty much what they said - and they don't care if it was sold - probably Already know and wont tell me - so they can get their money - and don't care about the Fraud.! they did say I was still on mortgage - they know BK I am NOT responsible But they said we are Both still on Mortgage.. so THEY know I have NOT quit claimed title to anyone)..


Oh did I mention SHE is NOW 18,000 plus in back taxes for 3 years and property is on brink of tax auction?  So WHY would a buyer/ how could a buyer buy a property without bringing taxes current?  No one knows about them - she is hiding that fact!  If this IS an all cash buyer...I believe she plans on TAKING the Money and Running and Not paying off mortgage... and IF this a buyer who has to get mortgage - wont they - the bank find out about the Jointly owned title on House?  and the back taxes?  if it is on contract - WHO would ignore these facts????  this leads me to believe it is a Scam Artist OR her daughter/baby dad who lives there and they a JUST as dumb as she is in regards to Mortgage Law and reprecussions of Mortgage Fraud and they also wouldn't be above Forgery! AND NO WAY WILL I EVER SIGN A QUIT CLAIM DEED ETC GIVING UP MY RIGHTS TO MY PROPERTY WITHOUT MY SHARE - IN CASH/WIRE TRANSFER!  I AM NOT REWARDING MORTGAGE FRAUD AND SOMEONE WHO TRIED TO KILL ME -FINANCALLY.  This is not for me about Money ANYMORE - it is about my Health and Happiness... I WILL NOT SIGN any other way!


WHERE DO I TURN TO REPORT THIS CRIME AND PROBABLY MORTGAGE FRAUD???  SALE IS GOING THROUGH IN SEPTEMBER!  I had a high powered lawyer a year ago to handle her signing my name before etc BUT they did NOTHING! and REPEAT I do NOT have a dime to my name - I am still recovering from Cancer.

Telling me to get another one wont Help - this IS criminal and I am Indiana and the Crime is being committed inI  New York!  Legal Aid also tried... I do NOT know a Lawyer in NY and I cant come all that way to find one (health) if I could find one to take this Pro Bono!


Anyway,  After all these years I have I found a good woman  who I am finally after ALL these years going to get married - - who is Most understanding and has a 2nd house she would like to deed to me for income!  She has her own also..  but I DO NOT WANT THIS NIGHTMARE hanging over MY/OUR head for the rest of our lives - however long or short hey may be!


Thank YOU,  I know it IS long and MOST complicated! PLEASE FEEL FREE TO CONTACT ME!...



jmmann72
jmmann72

To get a loan earlier than the regular waiting period.

jmmann72
jmmann72

My wife and I filled for chapter 13 bankruptcy during the process she decided she wanted a devoice. The 13 was then turned into a chapter 7. I have now tried to get another FHA loan. Does this situation allow me to get the FHA loan earlier than the standard waiting period. I have been turned down due to my name showing up on a carvis list. And my house had my mame on the deed till 2011. Do I qualify for an exception under the new law

redo2013
redo2013

My husband and I filed for bankruptcy in 2008 after he had lost his job.  We filed Chapter 13 and planned on keeping the house.  He found another job, but that company went bankrupt in 2009.  He was out of work for a year and when he did find a job it was half way across the country.  Our lawyer advised us to give up the house into the bankruptcy which we did and we moved in the spring of 2010.  Unfortunately for us, it was never explained to us that we still actually owned the house until the bank decides to foreclose on it until a Re-max realtor called wanting to rent it out or some such thing.  I called our lawyer and he said if we want to get our name off it faster, we could do a deed in lieu if the bank is willing.  The bank wants us to fill out all of their financial paperwork and says that it is just a formality and a step that has to be done in the process of deciding if they will do the deed in lieu or not.  I again called our lawyer as I was concerned with giving out our current financial information as we are finally doing good and the bankruptcy was discharged in September 2013.  I was and am still worried that if I give the bank our current financial status, can they use it against us?  My lawyer says that they can not come after us for the house.  What is your opinion? I am hesitant to give them the information but would love it if we can be done with the house in NY.  Are we protected by the bankruptcy?  Should we give out financial info?  We would like to buy a house sometime in the future and I know that there is a waiting period after either the deed in lieu or the foreclosure is final.  The house is going to be foreclosed on, but no date yet.

Wisdom810
Wisdom810

I haven't file bankruptcy yet but my mortgage for my property in Oregon for the last 24 yrs. was first with a company named Beneficial, then in 2005 I acquired Countrywide. I even refinanced in 02/2009 with Countrywide and they are who is listed on my promissory note and I paid them (Countrywide) for the rest of 2009 and started paying BoA sometime in 2010. When I signed the refi papers in 2009, someone came to my house and we sat at my kitchen table and signed away, is that normal? Thought it was kind of weird at the time. Something has my curiosity up. Fast forward to 2013 and BoA sends me letters that they have sold my mortgage to a company name Seterus and BoA quits billing me and I don't receive any bills from Seterus either, so I called Seterus in 08/13 and ask why I haven't been billed. I'm told that my mortgage was returned to BoA and they had no information why and after a long conversation I was told that it was a "business decision". So I was given the Correspondence address for Seterus so I fired them off a letter to hopefully get in writing why my mortgage was rejected and sent back. Received a letter back saying something like they didn't have my mortgage and  to contact BoA. So I ended up paying BoA for a few more months until I lost a job and got injured (hernia) on the job from another job. So I fell behind on my mortgage. When I came home from hospital in December of 2013 in my mail was a welcome packet from Seterus and  in the following days the statements from Seterus started arriving.  Eary in 2014 I worked with someone from Fannie Mae and she had me sending documents of my income, bank statements ect. over and over for over a month. When Seterus knew I was dealing with Fannie Mae they sent me a modification packet  saying I qualified for a modification  when I haven't ever made a payment to Seterus. After Fannie Mae had me spend about 2 months sending them paperwork and hardship letters and proof of everything, they told me "Oh look, we we're just notified that Seterus has sent you a modification, so fill out the paperwork and start making payments. Well I didn't tell her this but the days of me just signing papers ARE OVER especially since the payments they were asking for was more than I could afford with the employment I have. So I didn't do anything. Now in mid 2014 Seterus started moving my account to Foreclosure but in Oregon they are legislative laws saying the mortgage company has to go through mediation before they can foreclose. So I had to pay a non refundable fee to participate in the mediation but there's a company name NEDCO that oversees these cases and they have a packet of paperwork and require the homeowner to go through some sort of housing counselling and within the packet they want to see all the promissory notes for the property. I haven't been able to locate my copy of my promissory note so NEDCO told me to contact my servicer and they would have it. I called Setrus in early August and requested my note and they guy told me my foreclosure is on hold. He said he had to put in an order for the request so we'll see what happens. I'm suppose to have my mediation hearing with the lender in September. I'm not sure how long it will take for Seterus to produce my note. I think my nightmare is just beginning.    

panthr77
panthr77

Hi Scott,


I filed chapter 7 bankruptcy almost 4 years ago in NJ, We did not include our home, but they never reaffirmed it because they said we are upside down, Every mortgage statement we receive states that we are not liable  to pay this debt back, but if we do not they will take our home.We continued to pay the mortgage for the last 3 years but did not get credit for it, Our credit report reads chapter 7 bankruptcy $0 balance for our mortgage. We stopped paying it almost a year ago when we were unable to sell due to owning more than it is worth, Our neighborhood has gone down hill, I feel very unsafe here. I just want my name off the deed so I can move on with my life, Should I do a deed in lieu or try and short sale?? And, How long before I can buy again.....

mkcinca
mkcinca

I'm confused about removing the lien before I sell it. Wouldn't they be paid out at the close of escrow with the proceeds? 

Also, do you know if they will hit me up for late fees and penalties from the last 5 years?


mkcinca
mkcinca

I am selling my home in CA after a bk in 2009. I never reaffirmed my first or 2nd mortgage. I recently realized from researching online that I'm still responsible for the 2nd even though I have not received a single statement from Chase since the BK. Because I didn't received statements, I assumed they had written the equity line off so I never tried to make payments. They aren't listed on the lien as the original lender didn't change it when they sold it to Chase. My questions are these:

*If I'm obligated to pay the loan, which had a balance of $49K, will I be hit with late payments and interest, etc from the past 5 years since I haven't made payments? 

*Should I try to negotiate a payoff with Chase before selling my home? Many of my friends have settled for pennies on the dollar, some got free and clear write offs, but they were upside down. I am not. My worry is that I will open a can of worms and initiate a foreclosure. I have noticed that they check my credit regularly.


Mark9999
Mark9999

I was amazed to learn that my original B of A mortgage which was discharged in a 2011 Chapter 7 Bankruptcy was 'sold' to a new mortgage investor. This investor, in turn, hired a new loan servicing company to 'service' this loan. In 2013 the mortgage investor started the foreclosure process only to stop it completely after 6 months. According to my attorney, this new investor & servicing agent have NO legal way to force me to pay on this loan since it's been discharged. Accordingly all correspondence from the servicing company has been careful not to demand payment for ANYTHING! They continue to pay the taxes and insurance so I assume that once they realize I won't be tricked into playing their game, they'll restart the foreclosure process.The only issue I have is that the property title is still in my name.

aelias032003
aelias032003

I filed for bankruptcy in 2013 and let go of the house under the bankruptcy. I'm still living in the house and would like to keep it now because I can afford it. I filed a loan modification in June 2014 and that postponed a foreclosure sale date, but now I received another letter with a new foreclosure sale date in August 5. Should I still fight to keep the house? I'm not even sure if the mortgage lender will work with me because I let the house go under the bankruptcy. If I want to buy another house I know I need permission to get into debt again. How soon after filing bankruptcy can I buy a house? I've saved a very decent amount of money to put as down payment if I have to buy another house. Thanks.

1angell18
1angell18

We had a real estate agency trying to short sale our for closure home. Meanwhile we kept paying HOA fees even thus we had left the house 2 years ago. I was notified that the listing was canceled because the house has been sold back to the lender. My questions are: can we stop paying HOA fees now? Is the title finally off of our names? Thanks

ScottSchang
ScottSchang moderator

@Felicia08 Thank you for doing your research Felicia!  DO NOT reply to that property consultant, it is a SCAM.  You are already on title, and when the bank forecloses on the home, you would have absolutely no rights to the home, nor would you want any.  I hope this helps :)

ScottSchang
ScottSchang moderator

@Rjkmom if your mortgage debt is included in bankruptcy, you would not be financially responsible for any losses incurred as a result of the mortgage defaulting, or selling the home for less than what is owed.

If you can quit claim off title, I would do so as fast as you can without even thinking twice about it!  You being on title will prevent you from purchase another home in the future.

Since the debt is discharged, you cannot be held financially liable for anything that happens with the mortgage.

As far as taxes go, you would not be responsible for any income taxes, however you may be responsible for property taxes if you're on title.  You would want to speak to a CPA or maybe even your BK attorney for tax advice.

The only downside to quit claiming off title would be if your ex-husband hangs on to the property long enough to earn enough equity to sell the home at a profit at some point in the future.  If that is his strategy, you may not be entitled to any of the equity.

Hope this helps?

shaunnacarbonell
shaunnacarbonell

@Mark9999 Hi Mark,

My bankruptcy was discharged last year that includedmy home but I did not receive this form.  Is that the way it works in every state?

ScottSchang
ScottSchang moderator

@Mark9999 Thank you very much for the correction and clarification Mark!  Your input is very much appreciated :)

ScottSchang
ScottSchang moderator

@suzq1411 Oh my gosh, I can imagine your frustration!  There are several things here that don't make sense.  Did you record a reaffirmation of mortgage along with the bankruptcy?  If not, then Nationstar should have no right to come after you for late payments or penalties.  If the mortgage is included in the BK, that should be end of story.  You will want to consult your bankruptcy attorney regarding this matter.  The 1099 also concerns me.  A 1099 typically means that you the losses the lender incurred as a result of the short sale were reported to the IRS as income, which you would be responsible for paying income taxes on.

First and foremost, you need to review your BK paperwork and determine if the mortgage was discharged.  If it was discharged, all this goes away, if it was not, you owe the money.

What State are you trying to buy in?

ScottSchang
ScottSchang moderator

@shaunnacarbonell you basically have 3 options for getting your name off title.  1.  stop making payments and wait for the bank to foreclose, 2. find an experienced short sale agent and list the home as a short sale, 3. contact the lender and inquire about a deed in lieu of foreclosure.

The 1st option should be a last resort.  The bank could take years to foreclose on the home and that could seriously hinder your ability to buy again.  If you are unable to get the home out of your name, you could buy using FHA financing in 3 years from the date your name comes off title, or 4 years from the discharge date using conventional financing.

Hope this helps?

ScottSchang
ScottSchang moderator

@binnstacy Yes, I think that short sale is the best way for you to have any control at all over the timeline for getting those homes out of your name.  Of course, the bank will have to determine the sales price, you are not able to set the price yourself.

Fannie mae guidelines would actually allow you to buy again as soon as your name is removed from title.  The waiting period to buy again using conventional financing is 4 years from the bankruptcy.

Hope this helps?

ScottSchang
ScottSchang moderator

@chestermeeker This is certainly a challenging situation, and I am sorry to hear that you have had such a difficult journey.  Unfortunately, I am only a lender that is trying to educate consumers about the qualifying guidelines for buying a home after bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure.

If you do not mind, I will publish your situation on my site and maybe a real estate attorney will be able to reach out and assist you pro bono.

I apologize that I am unable to offer any other help, this is a legal issue and outside of my area of expertise.

Again, I am sorry I cannot help more. I wish you the very best and am happy to hear that you have a lot to look forward to once you are able to navigate through these troubled waters.

ScottSchang
ScottSchang moderator

@jmmann72 The new law does not apply to FHA financing, only Conventional

There are a couple of things here that would like to address.  First, what happened to the home?  If you simply quit claimed off title, and your ex received the property as sole and separate through the divorce, AND if the loan was current at the time and defaulted later (which would trigger the CAIVRS alert), you might not have to deal with it - but it would be manual underwrite situation.

CAIVRS basically means that there was a default on a FHA loan.  The waiting period to buy after a FHA default goes from the date that the FHA mortgage insurance claim was paid, not the foreclosure date.  You should be able to contact CAIVRS to get this date.

Either way, the waiting period for FHA is only 3 years from the foreclosure date, which will now be the date the MI claim was paid.

Using conventional financing, you could be eligible for financing 4 years from the BK discharge date.

Hope this helps?

ScottSchang
ScottSchang moderator

@redo2013 You lawyer is absolutely correct, the debt was discharged through bankruptcy and the bank cannot legally pursue you for the debt.  They can either foreclose, or agree to a deed in lieu of foreclosure, which will save them time and money.

Fannie Mae recently made a significant change in their qualifying guidelines which would waive any waiting period after a short sale, foreclosure or deed in lieu of foreclosure if the debt was discharged in Bankruptcy.  The only waiting period you have is from the discharge date of the BK.  For a chapter 13, that waiting period is 2 years from the discharge date, which would make you eligible to buy using Conventional financing in September of 2015 as long as your name is removed from title.

Hope this helps?

ScottSchang
ScottSchang moderator

@Wisdom810 What an unbelievabley horrible story!  I am so sorry you have been dragged through all of this.  I am unfamiliar with the laws in Oregon, but I would strongly recommend you hire a real estate attorney to assist with this process.  I wish you the best of luck, and again, I am so sorry you have had this experience.  I thought the worst of this kind of thing was over by now, but evidentially there are a few cases out there still kicking folks when they're down.

Good luck, I hope you revisit and let us know what happens, and maybe someone in a similar situation will be able to get some guidance on how to proceed.

ScottSchang
ScottSchang moderator

@panthr77 The good news is that your mortgage was included in your bankruptcy, so to answer your last question, you would be eligible to apply for conventional financing with 10% down in 4 years from the discharge of your Ch7.  If the bank has not started foreclosure proceedings, I would look for the short sale specialist (Realtor) in your area and begin the short sale process.  By starting this process, the bank will either offer a deed in lieu of foreclosure, or begin foreclosure proceedings.

To buy using FHA financing, you would have an additional waiting period that begins from the day your name is removed from title and will end 3 years from that date.

Hope this helps?  If you do not know a good short sale agent in your city, let me know where in NJ you live and I can reach out to my network and see if I know someone in the area.

Hope this helps?


ScottSchang
ScottSchang moderator

@mkcinca If you are not upside down, then you will most likely run into challenges with the second lien holder.  You need them to remove the lien on the home before you can sell it.  You could certainly approach them and ask them to settle for less than the amount owed, and you would fall under the new guidelines that would allow you to buy again using the BK timeline IF both the 1st, & 2nd mortgages were discharged in the BK.

Unfortunately, it is unlikely that the second mortgage will settle if you have enough equity to pay them. 

The good news is, whether they take less than what you owe, or if you pay them in full, you should be able to apply for a new mortgage right away, and if you qualify, you may be able to buy again without further delay.

Hope this helps?

ScottSchang
ScottSchang moderator

@Mark9999 this is a very unfortunate and I'm going to say super sleazy strategy by the "servicer".  Since you are the owner of the home still, why don't you just list it for sale?  If you're upside down on it, it would be a short sale, but that will not affect your credit, since the mortgage is already discharged.

Maybe that will push them to do something, whether they continue with the foreclosure, or accept the short payoff, you're off title.

Good luck!

ScottSchang
ScottSchang moderator

@aelias032003 The bankruptcy and the resolution to your defaulted mortgage are two completely separate issues.  The BK does not get rid of your mortgage, or your responsibility to pay the mortgage.  The BK does, however, prevent the lender from coming after you, or reporting a foreclosure on your credit report.

A short sale is a much better solution than a foreclosure in my opinion, for 2 reasons.  1. In some cases you can buy sooner after a short sale, and 2. A short sale is the only option where you have some control over the timelines.

In the past few years, lenders have been dragging their feet and postponing the foreclosures for years, which means that folks cannot buy again for much longer.

In order for you to even be in a position to be eligible for a mortgage you either have to catch the mortgage up and make it current for 12 months, or get your name off title as soon as possible through foreclosure, short sale, or a deed in lieu of foreclosure.

Finally, if making the mortgage current is not an option, you are looking at a minimum of 3 years from the date that title is transferred out of your name to buy again using FHA.  It's 2 years to buy using VA, conventional will be 7 years if the bank forecloses

Hope this helps?

ScottSchang
ScottSchang moderator

@1angell18 I would recommend contacting the HOA to make sure, but if your home was foreclosed, and you are no longer the owner, then you should not be required to pay HOA dues for a home you don't own.  To confirm, you can check with your County Recorder's office (or ask a lender or real estate agent) to verify that your name is off title.  It is a public record and should not be difficult to find

Hope this helps!

Rjkmom
Rjkmom

Thank you so much. There is not much chance of it regaining all the equity. It's upside down by about $100,000.

shaunnacarbonell
shaunnacarbonell

@ScottSchang @shaunnacarbonell This debt was discharged in the bankruptcy.  If I can get the bank to agree to a short sale or a deed in lieu of foreclosure how long will I have to wait before I can qualify to purchase again in another state?  Will the clock start when my name is removed from the title or when the bankruptcy was discharged?  I apologize for so many questions.  I just want to be sure that I am handling things correctly.

redo2013
redo2013

@ScottSchang @redo2013


So it now goes by the discharge date and not the date our name is off the house?  That is great!  Hopefully they will agree to the deed in lieu.   As far as the bank, it is safe for me to complete forms stating our current income as that is only a formality to finish the process even if our income is significantly different than when we filed?  I really appreciate your advice.  This all makes me extremely nervous and I'll be glad when it is completely behind us!

mkcinca
mkcinca

@ScottSchang @mkcinca 

I'm confused about removing the lien before I sell it. Wouldn't they be paid out at the close of escrow with the proceeds? 

Also, do you know if they will hit me up for late fees and penalties from the last 5 years?

Mark9999
Mark9999

@ScottSchang @Mark9999


Hi, thanks for the note. Unfortunately, a short sale will require the approval of the second mortgage holder. They are not inclined to work with me at this time since the house is deeply underwater. Some have suggested renting the home which is a viable option here. But not I'm not interested in becoming a landlord since that would expose me to even more liability.


So I wait and hope the foreclosure process is restarted again.

Biggryan
Biggryan

In my particular situation, I filed chapter 7 and waited 2 years for another mortgage. After calling my name was still on title, made a few phone calls and paid a real estate attorney for a title search. What I discovered is that the mortgage company released mortgage. I then at that point moved back in and paid the back taxes. They turned and walked away from house and luckily I called before house went to tax sell. So I now have my home back free and clear with a clear title and no mortgage on that title. Juatvthought I would mention this because everyone I've talked to even my attorney has never heard of this happening. Just thought I would throw this out there because mortgage company's are walking from properties because it will cost them more to for close then to walk away.

ScottSchang
ScottSchang moderator

@shaunnacarbonell absolutely no reason to apologize!  I honestly wish more people would ask more questions :)  The waiting period, and starting point for that that waiting period will depend on what type of loan you are trying to use to purchase your new home.

If you are using FHA financing with 3.5% down payment, the waiting period is 3 years from when your name is removed from title.

If you are using Conventional financing with 10% down, the waiting period is 4 years from the discharge date of the bankruptcy.

If you are eligible for VA financing with 100% financing, the waiting period is 2 years from the date your name is removed from title.

ScottSchang
ScottSchang moderator

@redo2013 @ScottSchang Yes, goes from discharge date if you are buying using Conventional financing.  If you want to buy using FHA financing, it will go by the date of the deed in lieu - 36 months from when your name comes off title.

You should avoid FHA financing if you can, it's very, very expensive.

You're in great shape!  Good luck :)  

Please check back in and let us know how everything goes?

ScottSchang
ScottSchang moderator

@mkcinca @ScottSchang you wouldn't have to remove the lien before selling, the loans would be paid off as part of the sale.  You would not be able to sell without the bank's permission if you are trying to pay less than the amount owed.

If you were upside down, they would have to give you permission to pay them less than what is owed.  Since you have equity, they have no incentive to collect anything less than everything they believe they are owed.  

You can certainly negotiate with them and ask them to waive fees or penalties, but they have no motivation other than being decent human beings.

Unfortunately, they have all of the control in this situation because you have equity.  I'm actually surprised that they have not started foreclosure proceedings knowing that they could be fully compensated for what is owed to them.

The first step is definitely to reach out to them and start exploring your options.   If you simply go into contract without coming to an agreement first, they will return a payoff demand showing everything they feel you owe them.

ScottSchang
ScottSchang moderator

@Biggryan Thank you for that!  I have actually heard of this before, you're absolutely right.  If the bank determines that it's not worth the cost to foreclose and resell, you could find yourself with a free and clear title.

What a great stroke of luck that you caught those past due taxes!  I don't always get the success stories here, this is great to hear.  Thanks for sharing

mkcinca
mkcinca

@ScottSchang @mkcinca Followup:  After being sent to multiple different departments, I finally got through to someone who could help me at Chase. They had me in inactive accounts, so I was not accruing interest or penalties. She told me to send a note retracting my surrender and they would settle with me for a fraction of the loan. She was very cooperative, and said they do this all the time, they just want the loan off the books. So I sent the fax, and we'll see. She told me to make an offer and we would go from there. Praying I'm not being played!!! I am going to offer $2500 on a $46K HELOC. I'll keep you posted. Thank you for the advice, I already feel a little better. In the meantime, I took the house off the market. Once the lien is removed, I'll re-list it.

ScottSchang
ScottSchang moderator

@mkcinca @ScottSchang That sounds like GREAT news!  The only thing to be aware of is that if you "retract" your surrender, you may be pulling that debt out of bankruptcy protection, which means it would no longer be "discharged in bankruptcy" - I wouldn't sign anything without running it by your bankruptcy attorney first.

I am afraid that if you pull the 2nd mortgage out of BK, that you will no longer qualify for the waiting period being tied to the bankruptcy discharge.  I believe that under that circumstance, you would then be subject to a waiting period tied to the short payoff.  In addition to all of that, the lender has the right to come after you for a deficiency judgement for the difference between what you settled for and what you paid, or even submit the loss to the IRS which would trigger a possibly tax liability as it could be considered income, which you would have to pay income taxes on.

Again, please consult a bankruptcy attorney and a CPA or accountant for guidance on these subjects.  I am only giving you my opinion and should not be taken as fact.  I am not a licensed attorney or accountant, I'm just trying to think of questions you should ask a professional :)

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