Post Chapter 7 Foreclosure

[nissandave]

What is the name of your state? NC

I have been victimized by the internet! Haven't we all?
Seriously, I have been given/seen conflicting information regarding my situation.

My situation:

My wife and I secured a FHA guaranteed loan through your company in July 1996. Since then, our situation has dramatically changed and I am researching for some answers to a couple of questions that I have to determine our best possible choice of options now in order to be able to get another mortgage in 2 to 3 years.
Me and my wife started our Chapter 7 last August. What got us into trouble were credit cards. We did not go through the typical period as most people do before filing where you start missing payments and getting behind on payments. Anyway, we carried a mortgage and a truck payment through and are still paying on them. Since we lived in NC and we were not behind on the payments, we did not have to reaffirm, instead we chose to keep the truck and house by staying up to date on payments. Our CH 7 went without any suprises, thankfully. We got our discharge in December and since then, we have updated/corrected our credit reports. Currently, mine is reported of having a 600 beacon score.
Now for the question:
Currently, our mortgage is a FHA guaranteed mortgage through Washington Mutual, it was formerly through North American Mortgage Co. We still have not reaffirmed, just kept up to date on payments. Our attorney and several others have advised us that we need to wait 1-2 years to re-establish our credit and work off the BK newness in order to get a halfway decent mortgage on another home. The problem is that due to idiot neighbors and a few other concerns, we need to move. I figure we could rent for a year or two and save some money for our next home. My questions is that IF we let our current home be foreclosed on through the bankruptcy, will that foreclosure knock us out of getting another FHA loan or other loan for certain, or will the fact it was included in our CH 7 be a bit more less detrimental of our chances for a new mortgage 2 years down the road? I don't think we could sell it for much anything due to various reasons, so I am seriously considering letting it go back to the mortgage company and let them have the joy of selling it. But I do not want to cut my own throat in the process of knocking us out of getting a new mortgage 2 years from now.
We are looking to be able to get into another house in 2 to 3 years with a total down payment of about $2500 to $4000 ideally, if that is possible. However, I am concerned that if we allow foreclosure on the current FHA house we have now, we will not be able to qualify later to be able to get another. Would you please advise on this situation?

I have gotten several responses from the above excerpt, which I sent to different people. Most all the brokers/mortgage professionals replied with these statements:

am not real familiar with FHA loans. What I do know if one lets a government backed loan go through foreclosure that it red-flags you if you apply for a government loan again. As far as traditional mortgage loans - which is what we do, a foreclosure generally reflects as a foreclosure on your credit for 10 years if the balance is paid by the Mortgage Company selling your home. This makes it almost impossible to get approved for a mortgage loan during that 10 year period. Lender's reasoning is if you let one house go back what it to prevent you from doing it again. Then there is the subject of a low down payment. Since you are already a bigger risk to the lender with a bankrupcty, the bank and/or mortgage lender is going to require a much larger down payment - like 30% of the purchase price. For example, on a $75000.00 house - they would probably require $22,500 down. However, if the sell your home for less than what is owed, then there would be a deficiency balance - which they could seek to get a judgment for. There are questions relating to the foreclosure/bankrupcty that only your attorney is qualified to answer. Naturally, I recommend you do your best to sell your property and avoid foreclosure if at all possible - your credit will remain much better.

A bankruptcy can be overcome in a few years as your attorney has advised. On the other hand, a foreclosure is the kiss of death with regard to getting a new mortgage. Can you rent the house out to cover the payments? Do anything besides the foreclosure. I am not an attorney, but I have never seen a Chapter 7 take care of a foreclosure. Consult your attorney before making such a move.

But, my lawyer says this:

The individual who sent you the email is correct that bankruptcy is not a long-term barrier to getting a home mortgage. Usually a person qualifies for a conventional 30 year mortgage 1-2 years after getting the discharge. My experience is that foreclosure is not quite as bad as his email suggests. Most clients with whom I work are able to get a 30 year mortgage 2-3 years after the foreclosure provided that the bankruptcy wiped out the debt (as has happened here).


So, taking all these thing in consideration, I reason that IF the foreclosure is secured totally thru the chapter 7, then it is less detrimental. The situation we are in, there is NO way we could put $22k down on a house, not now or EVER. I really want to be able to get another FHA, as it requires little downpayment.
Can anybody here give me some insight on whose information I should deem as accurate and credible? Also, does anybody have any personal expreience with a particular lender after you filed a chapter 7 and what lender was it?

Thanks is advance.

dave

[HomeGuru]

Originally posted by nissandave
What is the name of your state? NC


Can anybody here give me some insight on whose information I should deem as accurate and credible? Also, does anybody have any personal expreience with a particular lender after you filed a chapter 7 and what lender was it?

Thanks is advance.

dave

**A: Next time please post a short summary rather than a long post, as my attention span ended after the words "My situation:".

[HomeGuru]

Writer, list your home and sell it asap to pay off the lender. Do not let it go under foreclosure. You will not be protected by BK since your BK was already discharged.
You can rent for a couple years while you build up your credit. In 1-2 years you should be able to qualify again for a conventional or FHA mortgage.

[Souix]

Originally posted by nissandave
What is the name of your state? NC

I have been victimized by the internet! Haven't we all?
Seriously, I have been given/seen conflicting information regarding my situation.

My situation:

My wife and I secured a FHA guaranteed loan through your company in July 1996. Since then, our situation has dramatically changed and I am researching for some answers to a couple of questions that I have to determine our best possible choice of options now in order to be able to get another mortgage in 2 to 3 years.
Me and my wife started our Chapter 7 last August. What got us into trouble were credit cards. We did not go through the typical period as most people do before filing where you start missing payments and getting behind on payments. Anyway, we carried a mortgage and a truck payment through and are still paying on them. Since we lived in NC and we were not behind on the payments, we did not have to reaffirm, instead we chose to keep the truck and house by staying up to date on payments. Our CH 7 went without any suprises, thankfully. We got our discharge in December and since then, we have updated/corrected our credit reports. Currently, mine is reported of having a 600 beacon score.
Now for the question:
Currently, our mortgage is a FHA guaranteed mortgage through Washington Mutual, it was formerly through North American Mortgage Co. We still have not reaffirmed, just kept up to date on payments. Our attorney and several others have advised us that we need to wait 1-2 years to re-establish our credit and work off the BK newness in order to get a halfway decent mortgage on another home. The problem is that due to idiot neighbors and a few other concerns, we need to move. I figure we could rent for a year or two and save some money for our next home. My questions is that IF we let our current home be foreclosed on through the bankruptcy, will that foreclosure knock us out of getting another FHA loan or other loan for certain, or will the fact it was included in our CH 7 be a bit more less detrimental of our chances for a new mortgage 2 years down the road? I don't think we could sell it for much anything due to various reasons, so I am seriously considering letting it go back to the mortgage company and let them have the joy of selling it. But I do not want to cut my own throat in the process of knocking us out of getting a new mortgage 2 years from now.
We are looking to be able to get into another house in 2 to 3 years with a total down payment of about $2500 to $4000 ideally, if that is possible. However, I am concerned that if we allow foreclosure on the current FHA house we have now, we will not be able to qualify later to be able to get another. Would you please advise on this situation?

I have gotten several responses from the above excerpt, which I sent to different people. Most all the brokers/mortgage professionals replied with these statements:

am not real familiar with FHA loans. What I do know if one lets a government backed loan go through foreclosure that it red-flags you if you apply for a government loan again. As far as traditional mortgage loans - which is what we do, a foreclosure generally reflects as a foreclosure on your credit for 10 years if the balance is paid by the Mortgage Company selling your home. This makes it almost impossible to get approved for a mortgage loan during that 10 year period. Lender's reasoning is if you let one house go back what it to prevent you from doing it again. Then there is the subject of a low down payment. Since you are already a bigger risk to the lender with a bankrupcty, the bank and/or mortgage lender is going to require a much larger down payment - like 30% of the purchase price. For example, on a $75000.00 house - they would probably require $22,500 down. However, if the sell your home for less than what is owed, then there would be a deficiency balance - which they could seek to get a judgment for. There are questions relating to the foreclosure/bankrupcty that only your attorney is qualified to answer. Naturally, I recommend you do your best to sell your property and avoid foreclosure if at all possible - your credit will remain much better.

A bankruptcy can be overcome in a few years as your attorney has advised. On the other hand, a foreclosure is the kiss of death with regard to getting a new mortgage. Can you rent the house out to cover the payments? Do anything besides the foreclosure. I am not an attorney, but I have never seen a Chapter 7 take care of a foreclosure. Consult your attorney before making such a move.

But, my lawyer says this:

The individual who sent you the email is correct that bankruptcy is not a long-term barrier to getting a home mortgage. Usually a person qualifies for a conventional 30 year mortgage 1-2 years after getting the discharge. My experience is that foreclosure is not quite as bad as his email suggests. Most clients with whom I work are able to get a 30 year mortgage 2-3 years after the foreclosure provided that the bankruptcy wiped out the debt (as has happened here).


So, taking all these thing in consideration, I reason that IF the foreclosure is secured totally thru the chapter 7, then it is less detrimental. The situation we are in, there is NO way we could put $22k down on a house, not now or EVER. I really want to be able to get another FHA, as it requires little downpayment.
Can anybody here give me some insight on whose information I should deem as accurate and credible? Also, does anybody have any personal expreience with a particular lender after you filed a chapter 7 and what lender was it?

Thanks is advance.

dave

**I bought a house about 13 years after I filed C7 that discharged a home loan, and my credit report was clean. The lender told me I could have qualified for a mortgage 2 years after the discharge with a letter of explanation for the C7. That was 10 years ago, now my bk clients are able to qualify for an FHA loan 2 years after discharge or any type of loan for that matter. There are zero down conventional loans now too.

What you may not realize is there are all types of loans on the market now. You need to speak to a good loan officer in your area. There are a couple types of loans where the downpaynment is a donation from a non profit association, one being the Niamiah(sp?) program and the other is AmeriaDream, both FHA insured and the down payment does not have to be paid back.

However, it is probably better if you hang onto your present home because of the possibility of a deficiency judgment. Can you rent out a room or something? Have you spoken to any realtors in your area about doing a market analysis for you to see how much equity you may have? A cma is usually free of charge and you can get some good advice from realtors and possibly a referral to a good mortgage broker.

[nissandave]

Thanks for your reply. I am not concerned with a deficiency judgemment because in NC if you file bankruptcy and are current on your mortgage payments at the time of filing, you can chose just to keep current on payments to keep the house instead of reaffirming. That way, if you need to get out of the payments for whatever reason, you can without being responsible for the defeciency.
What I am concerned about is whether the "foreclosure" will be just as detrimental as a "regular" foreclosure. I let a car lease go back after the discharge of the ch 7 as my attorney advised and my credit report listed it as a voluntary repossession. Then I filed a protest with the credit bureau and got it changed back to a listing of "included in bankruptcy". My lawyer stated to me that if I do go thru with a foreclosure it may be listed on my credit report as one. As my house is falling apart (reminiscent of the Sanford Salvage home) I am weighing which hit will hurt worse.

[Souix]

Originally posted by nissandave
Thanks for your reply. I am not concerned with a deficiency judgemment because in NC if you file bankruptcy and are current on your mortgage payments at the time of filing, you can chose just to keep current on payments to keep the house instead of reaffirming. That way, if you need to get out of the payments for whatever reason, you can without being responsible for the defeciency.
What I am concerned about is whether the "foreclosure" will be just as detrimental as a "regular" foreclosure. I let a car lease go back after the discharge of the ch 7 as my attorney advised and my credit report listed it as a voluntary repossession. Then I filed a protest with the credit bureau and got it changed back to a listing of "included in bankruptcy". My lawyer stated to me that if I do go thru with a foreclosure it may be listed on my credit report as one. As my house is falling apart (reminiscent of the Sanford Salvage home) I am weighing which hit will hurt worse.

**Yes mine was listed as a foreclosure on my credit report even though I filed C7. Have you spoken to your bank? They may accept a Deed in Lieu of Foreclosure or they may require you to negotiate a short sale first, depends on the bank. Have you tried to sell under a short sale arrangement? The short sale is when you negotiate with the bank to accept less on their payoff balance, of course, you would not be entitled to any proceeds this way, but at least you'll be free of the mortgage payment and it would not show on your credit report as a foreclosure.

A good real estate agent will be able to help you with the short sale negotiations once you put your home on the market. Like HGuru suggested....sell sell sell NOW!

[HomeGuru]

[quote]Originally posted by nissandave


What I am concerned about is whether the "foreclosure" will be just as detrimental as a "regular" foreclosure. I am weighing which hit will hurt worse.

**A: on your credit report, the forclosure will not look good and will appear as a foreclosure period. There is no "regular" or special circumstances foreclosure categories to choose from.