Including a home in BK and trying to apply for an FHA loan?

[Erik Sandstrom]

Here's what I have seen many of the borrowers on the forum experience and I wanted to respond with what my underwriting department told me directly in regards to this. Many questions that borrowers have asked are:

1. How long before I qualify for an FHA loan if I included my home in the bankruptcy?
2. Are the seasoning requirements related to the bankruptcy or foreclosure?
3. When does the foreclosure seasoning begin?

Answer:

Foreclosure seasoning is from the Trustees Sale date and not anything that is listed on the credit report. The Trustees Sale would be of public record and a Title company could pull it up. However, FHA has some other funky things, like if the home was surrendered in the Bankruptcy then the seasoning for a Foreclosure would begin on the date the BK was discharged, BUT, if FHA had to pay a claim on the previous FHA loan, then the borrower will have to wait 3 years from the date the claim was paid by FHA and that date would have to be accessed in the FHA mortgage connection.

A bit more detective work is in order for these types of transactions, if you have a loan officer that wrote you up a pre-approval for a new home purchase you may want to make sure these questions are answered. If you make a good faith deposit and the loan doesn't fund or meet the 17 day loan contingency in many states you may end up surrendering the deposit. In some cases these deposits are in excess of 10,000.00 - you don't want to risk that. Make sure you're working with a qualified professional that has been in the industry for some time.

If you have any questions please don't hesitate to ask.

 

[Evan Bedard]

Awesome information Erik!! This is definitely a major topic as some people experience different results when pursuing a new mortgage post Bk/foreclosure.

 

[indeep1959]

Erik,

When you say "if the home was surrendered in bk", are you meaning simply discharged, or by some other means?

My bk 7 will be three years in July, and I had 2 homes, both discharged, but my second home was not foreclosed on till Sep of '11.
I am still currently in my primary home.
It would be great if I could apply for another mortgage this summer, FHA of course.

 

[bgriff]

Erik - thanks for the insight. I think there are many of us with the question of :

Filed for BK7 and included both 1st & 2nd, never reaffirmed either and DID NOT surrender the home and continue to live in it today. What is seasoning for this type of situation for either an FHA loan or a conventional loan. In my case, I'm almost 4 years past the discharge date and I've been told, from one broker, that the seasoning starts once the title passes from my name and another broker told me as long as the loan does not show on my credit report, I was eligible. The home is $120k underwater so a sale would have to be a short sale.

 

[Erik Sandstrom]

Hi Bgriff,
Here's what I have encountered in this situation as I have had a file very similar to this circumstance. When you include a home in BK and surrender it, that's basically what the underwriters want to see. You still continuing to live in the property may hinder the transaction in a few different ways. Because you're still living in it and not making the mortgage payment it will come up through an internal system that is ran called MERS which will show your ownership interest in a property and then we find out what the current status of that loan is. If that loan is past due, we would treat it as if there are missed mortgage payments.

If the property was foreclosed and included in bankruptcy we would go by the bankruptcy seasoning periods as long as the property has been deeded out of your name. The reason for this is because we really don't know what your intentions with the other property are (even though it can be very clear), you could technically bring the loan current and still retain ownership.

I hope this makes sense and I'm actually curious about the current status of your situation as this post is older. Please let me know if you have any additional questions.