Bankruptcy and Foreclosure: How They May Delay Your Next Purchase

Almost all mortgage loan programs have restrictions on how soon after a Bankruptcy and/or Foreclosure you can purchase a new home. The minimum is typically 2 years after a bankruptcy and 3 years after a foreclosure; with re-established credit. The problem arises as to when those dates begin.

I recently had a customer that was three years past their bankruptcy discharge date and had re-established suitable credit. Their previous mortgage was included in the bankruptcy and was not contested by the lender. Unfortunately, they did not sign over their previous house to the lender with a quit claim deed and the lender went through the foreclosure process on the property. Although not contested by my borrower, the foreclosure process took 16 months to complete, adding 16 months before the clock even began running on their foreclosure.

Neither your attorney nor the judge understand the ramifications that a court proceeding may have on your credit and your ability to borrow in the future. I see this all the time with both bankruptcies and especially divorces. For now, let’s concentrate on the bankruptcy process.

During the bankruptcy, you can choose to either include the house losing the equity in your property, or you can choose to “re-affirm” that debt and continue with your payments. In my borrowers situation, they chose to walk away, not able to continue with the payments. What they should have done was to sign a quit claim deed and have it recorded, giving their rights in the property to the lender.

If you choose to re-affirm the debt, then there is also paperwork that you must complete with your lender. Otherwise, even though you never miss a payment, they will continue to report your mortgage as included in the bankruptcy and not show your current “good” payment history.

Your lawyer, and the judge, are only responsible for dealing with the matter at hand and do not look to see how that will affect you in the future. Speak with someone that understands how such an action can affect you going forward. If you know someone going through a bankruptcy or divorce, have them call me.


© 2011 Richard Swan
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.

How Much Down Payment on a Home do You Need?

My friend did an 80/20 loan when she bought her house and didn’t have to put any money down, how can I get one of those? Two years ago in the mortgage lending world, there were many programs that allowed borrowers to max out the value of the property with low down payments. What lender’s found is that Real Estate, like any other investment, can be subject to fluctuations in value. If you loan someone 100% of the value of their property and that value drops, you could be left holding the bag.

Now, most lenders’ require some type of down payment, except for limited programs for Veteran’s and first time buyers. In most cases, you will need to have at least a modest (3.5%-5% down payment) in order to qualify to purchase a home. Credit scores have also become a more important part of the qualification process. If your credit score is below 680, you may need to put up to 20% down, unless the property will qualify for an FHA or First Time homebuyer’s program.

To find out all of your options, make sure that you are dealing with a mortgage banker. They will have access to more programs and be able to talk with you in detail about all of your options.

This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.

Maintaining Your Credit Through a Divorce

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While going through a divorce, the last thing on your mind is how it will affect your credit. Your attorney takes the responsibility for making sure that you are legally separated from your spouse. That involves a separation of debt and assets. Typically a judge will issue the final decree and the final divorce document lists the items that you are responsible for, and those that are delegated to your spouse.

While future lenders will use the final divorce decree to eliminate those debts assigned to your ex-spouse from your debt to income ratio, the divorce decree does not protect your credit.

At the time that you applied for joint loans (while you were married) creditors relied on both of you to approve the credit card, car loan, or home mortgage that you received. The divorce decree cannot set aside the creditors right to come after you to recover un-paid debt obtained before you were divorced. Should your ex-spouse fail to make payments on time, or default totally on the loan, this information will be reported on your credit and could affect your credit score for years to come.

So what should I do? Always seek to pay off and close any joint account. Tell your attorney that failure on the part of your ex-spouse to pay their obligations after the divorce could affect your credit. Make your spouse sell, or refinance any items that cannot be paid off; while this may force them to adjust their lifestyle to their current income, it will prevent you from being reported for poor payment history.

I have heard that closing accounts could lower my credit score, is that true? Yes, closing accounts could lower your score, but not nearly as much as finding out a year later that your ex-spouse didn’t make any payments and you owe thousands of dollars in outstanding balances.

If the divorce was particularly bitter, continue to check your credit regularly over the next several years. Your ex-spouse knows more about you than most people. It would not be difficult for them to fraudulently open new accounts in your name. Most credit agencies will allow you to put an alert on your account that requires a phone call to you before new credit is issued.

For more information on credit issues go to:

www.experian.com
www.transunion.com
www.equifax.com


This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.