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.

Loan Modification Programs May Not Be the Answer

Loan modification programs exist through the Department of the Treasury and Housing and Urban Development, but when you speak with your lender, make sure that you document everything, including your conversations. I have had three friends in my office over the last year that began exploring a Home Affordable Modification Program (HAMP) with their existing servicer. All three had done everything that the servicer had requested, including skipping payments to show a history of difficulty making the payment.

In all three cases, they were denied the modification and foreclosure proceedings began. This is a horrible situation since two of these borrowers had not missed any payments before talking with their lender. The purpose of this program is to keep people in their homes. If you have had a similar experience, or know someone who has, contact your congressman, or senator. They need to receive feedback of what is occurring.

If you are considering a modification, document everything including the dates and times that you speak with your lender. Try to get everything in writing that they promise you and never skip payments at their request. Protecting your credit and your home are your responsibility. If it sounds too good to be true, it may be.

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.