24/7 Hotline: 1-855-643-7500

Home » Blog » Expert Advice » Foreclosure After Bankruptcy Waiting Period
What is the waiting period for a foreclosure after bankruptcy?

Foreclosure After Bankruptcy Waiting Period

The Question

I received a great question this week from one of our readers regarding the waiting period when a foreclosure occurs after a chapter 7 bankruptcy.

Hi Scott,

I had a Ch7 bankruptcy discharged in Dec 2013 and a foreclosure in Sept 2014.  I am looking to refinance and know that I now qualify for an FHA loan since 3 years have passed since my foreclosure but I am getting different answers on when I will be eligible for a Conventional loan. 

Some have told me 4 years from bankruptcy (which would be this December) but others have told me it would be 7 years from my foreclosure.  If it is in fact 4 years from the bankruptcy, I would wait until December to start the refinancing process and avoid mortgage insurance. 

I appreciate your expertise and input.  I am located in FL.

Thanks in advance,

Gricel

Real Professionals. Accurate Answers. Available Now. Click Here for Help

 

The Background

The economic down turn caused by the great real estate and mortgage market crash that started in late 2007 left a great number of home owners in a difficult situation, with many falling victim to bankruptcy that included mortgage loans.

In this situation, the foreclosure property was not a primary residence, and was eventually lost to foreclosure almost a year after the discharge of a chapter 7 bankruptcy.

Conventional financing, specifically Fannie Mae underwriting guidelines, were updated in August 2014 that defined what the waiting period is after a financial hardship. These waiting periods tell lenders when you would be eligible to qualify for a new conventional loan.

Need Help Now? Click Here for an Expert Introduction!

While the waiting periods are pretty easy to track, there’s always more to the story and every situation is unique as to what happened, what order things happened, and waiting period guideline should be applied.

Add to this the fact that underwriting guidelines are exactly that…a guideline, as opposed to actual rules….And guidelines are open to interpretation.

The Answer

Here is the actual Fannie Mae underwriting guideline as it appears in the 1,408 page selling guide that instructs lenders on how to underwrite a mortgage application to Fannie Mae standards.


Foreclosure and Bankruptcy on the Same Mortgage

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

Click Here if You Need a Professional Opinion


In Grisel’s case, the mortgage was discharged through the bankruptcy, and then the foreclosure took place 9 months later. The correct answer is that she would be eligible for Conventional financing 4 years from the discharge of the bankruptcy.

The contradicting and inaccurate answer received by multiple other lenders is quite common actually.  Many big box lenders will route calls into a call center to be processed like a loan application assembly line. Answers to hard questions that require knowledge of underwriting guidelines are often incomplete, inaccurate, or straight up wrong.

In cases where you are not stuck in a call center, not all lenders follow the same “code” and can interpret the guidelines more conservatively.  These lenders choose to not work with consumers that they perceive to be “not easy enough”.

Of course, there is always much more to the story, and everything must be backed up with documentation to show the timing, and course of events.  Your mortgage application is still subject to meeting all qualifying requirements once the waiting period has been met.

Need a Mortgage Professional? Click Here for an Expert Introduction!

Bottom line – Just because you read it on the internet or someone on a phone says it’s so….doesn’t necessarily make it true or accurate.

Real Professionals. Accurate Answers. Available Now. Click Here for Help

About Your Expert

Scott Schang

As a 18 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

Leave a Comment





2 Comments

  1. Steve on November 18, 2017 at 2:30 am

    We had both 1st and 2nd notes discharged in 2012 bk7. We did not reaffirm either mortgage. We have continued to pay and stay. We want to buy new house in 2018. We are thinking about quitting making monthly payment to stay and letting lender forclose. We are in MN. Foreclosure process will take 8 to 12 months. It appears we meet the Fannie Mae waiting period guide lines from discharge date to qualify for new mortgage loan. The 8 months of non mortgage payment will get us the 5% down needed for new house. Our credit scores are 675 plus. 100% on time payment since bk discharge. Based on the above would the 8 months of non payment hurt or chances of getting a new loan?

    • Scott Schang on November 18, 2017 at 11:04 am

      Hey Steve,

      This is a tricky question. I am encountering more an more underwriters that don’t like if you’ve stayed in the home and continued to pay for many years after the BK. I am assuming that the home is upside down? Is that the reason for the foreclosure?

      I do know lenders that will do this, but know that it’s not a “black and white” guideline that all lenders know.

      If you can sell the home and pay both loans in full…that should be option #1. Option #2 might be looking into renting the current home and buying a new one. The last option would be short sale, foreclosure or deed in lieu.

      I’m happy to talk through this with you. There are a few moving parts here and the vagueness of the guidelines could be stressful.

      Let’s talk this out and make sure you’re fully prepared to commit to one of these paths, and understand exactly what the consequences, timelines and opportunities look like on the other side of this.

      If you stop making payments, it will not affect your credit.

      Shoot me an email to scott@findmywayhome.com with your contact info and let’s make we’re covering all your bases.

      Hope this helps?