Mortgage Discharged in Bankruptcy is NOT Free and Clear?
December 2017 UPDATE: When Fannie Mae changed the waiting periods for a foreclosure on a mortgage included in bankruptcy in 2014, there are still lenders and underwriters that will not, or cannot, approve these loans because they do not know the guidelines.
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.
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.
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spiritlovescolorado thank you for sharing your story, this is unfortunately a very common problem. The good news is, VA will allow you to buy as soon as 2 years from the foreclosure (date your name is removed from title). Other than that, I am unaware of a way to force a lender to foreclose.
It’s certainly not fair, and it’s rather tragic that the incompetencies of banks would drag out the pain it is causing good people that have experienced bad situations.
I’m sorry I am unable to offer more help, good luck!
We had to file in 2012 and the HOUSE WAS……. THE REASON…… Hubby lost His job to business Closure…ONE Month after purchasing the home….. His Father Was Ill Then I…. Long story Short The USDA Harrassed us until WE GAVE THE KEYS BACK IN JULY 2011 Which they WILL AKNOWLEDGE… We did TRY TO SELL….. Unsuccessfully…. We surrendered the Home IN THE BANKRUPTCY that WAS FINALIZED ON JUNE 26 2012…… We have been working on repairing credit AND ALTHOUGH MOST OF THE HARASSMENT HAS Ceased Praise God…….. Hubby looked and WE ARE STILL LISTED AS THE OWNERS….. With the County and When We called USDA She told Us…… She doesn’t have enough help to process the foreclosures…… SHE’S KNOWN ABOUT NOW 3 YEARS…….. That We May Move out of this 1976 RV and Hubby can get His VA loan! She told Us if We don’t like it We could CALL OUR SENATOR……..!!!!!!! How do You force……. USDA ( The Gov. ) TO DO ANYTHING! I told Them I COULD NOT AFFORD THAT HOME IF HUBBY LOST HIS JOB…….. The Loan WAS SUPPOSED TO HAVE SOMETHING TO DO WITH MY BEING DISABLED….?? AT CLOSING AND THE VERY SAME LADY WHO WORKED ON THIS ORIG. MORTGAGE…….. AND MY REALTOR TOLD ME…… I COULD….. BECAUSE THERE WOULD ALWAYS BE….. UNEMPLOYMENT AND THAT THIS IS WHY THEY CHOOSE TO PUT ME ON THIS LOAN….???????? Any how…….. like I said STILL IN OUR 76 RV TRYING TO BETTER OUR CREDIT ……. Wanting to Move on AND AFTER 3 YEARS NOW THIS JULY……….. ONLY FAIR THAT WE COULD! Uhhhhh Lost……. For What to do Next.
oscerl You definitely should speak to a bankruptcy attorney. I am unable to say whether or not you would qualify for bankruptcy. Bankruptcy is a strategy that many folks were forced to pursue because of this same reason.
Hope this helps?
i have sold my rental property short sale, it was under water . now i have $130.000 for giving from my bank. my tax man tells me i have to put that as my income . my question would a bankruptcy clears that.
Hello
I am Mrs Beatrice Adam,currently living in New jersey city,USA.I am a widow at the moment with three kids and i was stuck in a financial situation in may 2013 and i needed to refinance and pay my bills.I tried seeking loans from various loan firms both private and corporate but never with success,and most banks declined my credit.But as God would have it,I was introduced to a man of God a private loan lender by name Mr MARK SMITH who gave me a loan of $85,000USD and today am a business owner and my kids are doing well at the moment,if you must contact any firm with reference to securing a loan with low interest rate of 5% and better repayment plans and schedule,please contact Mr MARK SMITH.He doesn’t know that am doing this but am so happy now and i decided to let people know more about him and also i want God to bless him more.You can contact him through his email via: marksmithloan@outlook.com
(Mr Marksmith)
mikeboth Hi Mike, you’re on the right track except that the mortgage you included in the BK, which the home has not yet been foreclosed on, it technically still in default. BK does not mean you don’t owe the mortgage, it simply means you cannot be “double hit” on your credit in the event that you should stop making your payments and default in the future.
The criteria of the Back to Work program that you will need to be most concerned with is that 12 months of on-time payments on all of your debts. Since the mortgage is in default now, you would have to cure that. Once the foreclosure is complete (or short sale or deed in lieu), the clock will start ticking on the 12 months of on-time payments, after which you may be eligible.
Hope that helps?
Scott, I really appreciate a professionals point of
view here so please let me know your thoughts. I’ve been reading more about the FHA Back to Work program and it
looks to me like I would not need a final foreclosure to qualify based on what
I can find on HUD. The qualifications of the plan state I would need just one of the following to qualify: A) a discharged
bankruptcy or B) a short sale or C) a foreclosure. It appears that any one of these
would qualify and while my house has still not been foreclosed my bankruptcy that
included my mortgage was discharged on 3/25/2011. If I am reading that correctly I would only have to wait for 12 months after a foreclosure OR a bankruptcy
discharge unlike the current FHA program that only accepts Foreclosure as a
qualifier. My bankruptcy (Including my mortgage) was discharged on 3/25/2011 and I meet or exceed all of the other criteria for the Back to Work program. Does this sound correct or would underwriting kick it back somehow?
filed for bankruptcy2012 and got our release at the end of 2012. We let the house go . Then we had recently heard from the morgage compnay they are not forclosing and we dont owe anything. which we hadnt paid any morgage payments sence early 2012. We still do not want the house and were notified the house would be going up for taxes starting in september. We plan on just letting it go up for taxes. Will that be the end of it or will we have to claim on our taxes any thing for all the amt. we owed that they let go?? Just want this house out of our life already. Thought with the bankruptcy it was but now not to sure. 🙁
Hello Scott. I filed bankruptcy in July 2009 which was discharged in November 2009. Uneducated on the entire process regarding my foreclosure after bankruptcy/ deed in lieu after bankruptcy, etc… My husband and I continued to pay our mortgage on time after the discharge. Our house is upside down. My husband tried to purchase a new home this past summer and was told that he could not because we still owned our current home. We were told that since his name is still on the title/deed that he could not receive financing because our home has not foreclosed/short sale etc. Both of our names are on our home. Once we learned this information, we did a quitclaim deed removing him from the deed. Will this now allow him to purchase a home and if so, how long does he have to wait? If this does not allow him to purchase, what are or options?
hello scott, my name is chris and a filed for chapter 7 and its been discharged already. my house was included in the bankruptcy. and I have not not reaffirmed my mortgage. I however was offered a loan modification to my understanding is not reaffirming my mortgage. anyways my question is this. currently I still live in my home and make my monthly payments. But I want to buy a new house. I heard I have to wait 2 or 3 years before I can buy one. does my house have to go into foreclosure before my 2 year wait starts? can I just pay my mortgage and live here for the 2 years . then stop paying and get a new loan for a different house. lol im not sure I even made sense.