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FHA qualification question


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Ok this is a point of confusion for me so maybe someone has heard the answer.

If you file bankruptcy and have to surrender your principal residence in the process and the lender files a foreclosure action after the discharge to recover the house... do you have to say 'yes' to a foreclosure on a new mortgage application?

I ask because FHA has guidelines that say you can be approved after 1-2 years for bankruptcy but must wait 3 years if you had a foreclosure.

The sticky point is if you file bankruptcy and either the lender refuses to reaffirm, the attorney refuses to certify the reaffirmation, or the judge refuses to allow the reaffirmation, then the debtor is stuck with only redemtion (very unlikey) or surrender of the property. If the debtor is forced to surrender the property and the lender then forecloses to get the deed out of the debtor's name, should the debtor be extra-penalized by the FHA guidelines?

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This is about all I could find myself:

"A borrower whose previous principal residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage. However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area."

I would think my situation would be considered to have been out of my control:

  • Tenant (not screened properly by real estate agent) letting in drug dealers into my rental property and then wrecking it to the tune of $20k.
  • Insurance not covering it due to the insurance agent making a mistake on the policy when it was bought.
  • Expense of evicting tenant and loosing six months rent...having to cover it with my personal savings.
  • Getting laid off two months after draining my reserves fixing up the rental.
  • Getting reemployed but the damage was already too far done to get out of: Filing bankruptcy and getting laid off again the day of the 341 meeting.
  • Lender refusing to cooperate with reaffirmation on primary residence.
  • Attorney refusing to certify any reaffirmation agreement due to having lost employment.
  • Six months unemployed due to crash of economy and job market

And yet I have since recovered. I have NO DEBT and my wife's only debt is her 2006 Outlander payments at 0% for about 24 more months. I have a 2006 Eclipse GT paid for in full. I make $57k a year in an area where $24k is average. We have $37k in CASH on hand, of which $17k is available for downpayment on a house. I should have another $8k-$12k by the end of the year -- which is how long it would take a builder to construct a house. The builder is offering another $10k in free design upgrades and $8k toward closing costs on a house with a base price of $145k.

I would think this wouldn't be too hard to accomplish. But... you never know.

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  • 1 month later...

I was told by my mortgage broker that a foreclosure has to be 2 years old before I can qualify for FHA. Which is why I'm stuck trying to get this mark REMOVED. Extenuating circumstances should include a settlement on behalf of CW but thats me. Guilty but not enough.

Best of luck.

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