foreclosure effects after bankruptcy chapter 7

[Arne]

It looks like a property that has been surrendered in a chapter 7 bankruptcy in Florida still will have to go through the foreclosure process for the lender to get the Deed.

Does that mean that the mortgage lender, in the foreclosure process, can retain the right to do a Deficiency Judgment and come after the mortgage holder after some years and ask for the unpaid mortgage amount, as they can in a foreclosure?

Does that mean that the mortgage lender, in the foreclosure process, leave a foreclosure notice on the credit reports or will only the bankruptcy show up?

Will requesting the mortgage lender to do a Short sale of a property that has been surrendered, bring the discharged mortgages out of the discharge and so can hurt the mortgage holder again?

[WhoCares1000]

In surrendering the property, did you sign a deed over to the bank. If so, then they should not have to go through the foreclosure process. The surrendering should have been like a deed in lieu of foreclosure. If nothing was done however, then yes, the bank has to do a foreclosure process. To answer your questions:

1) Any deficiency judgment has been wiped out by the bankruptcy. The only thing the bank can do is foreclose on the property and sell it to try to recoup whatever they can. The bank cannot come after you for the difference. That has not stopped some banks from trying but if they do, it is a violation of the discharge.

2) The foreclosure will end up on your credit report but that is like sending in a cruise missile to bomb an area that has already been nuked. The foreclosure will stay on for 7 years. You pretty much will not be able to purchase a home for the next 5 to 10 years anyways so don't worry about it too much.

3) You could try to do a short sale but why bother. Again, there will be no deficiency when all is said and done so don't worry about it unless some idiot JDB tries to come after you.

[Methuss]

Your personal liability for the loan ended when the bankruptcy discharge was entered regardless of if the lender took the deed back during that process. If they chose foreclosure outside of taking the deed back through the bankruptcy trustee -- which is common if the primary lienholder wants to wipe out secondary liens--, you are not liable for anything.

The foreclosure action after the bankruptcy discharge is an action against the property, not you personally even though you are named as a party of interest on the filing. It should NOT appear on your credit reports in any way. Not as a public record, and not as a foreclosure mark on a tradeline. The loan tradeline should read "discharged" with $0 balance and no further activity past the filing date.

I went through this with Litton myself. It took some time to get the matter cleared up, but it is now reported properly. Expect reporting screw-ups, not because of bad faith, but simple incompetence by the lender.

[Denita]

Methuss is right. It can not be reported on your cr report after you have filed a BK UNLESS you had the F/C prior to filing.

Look at the sticky posted by LadyNRed for BK reporting. It has a weath of info and case law too.

[Newlywed]

In surrendering the property, did you sign a deed over to the bank. If so, then they should not have to go through the foreclosure process. The surrendering should have been like a deed in lieu of foreclosure. If nothing was done however, then yes, the bank has to do a foreclosure process. To answer your questions:

1) Any deficiency judgment has been wiped out by the bankruptcy. The only thing the bank can do is foreclose on the property and sell it to try to recoup whatever they can. The bank cannot come after you for the difference. That has not stopped some banks from trying but if they do, it is a violation of the discharge.

2) The foreclosure will end up on your credit report but that is like sending in a cruise missile to bomb an area that has already been nuked. The foreclosure will stay on for 7 years. You pretty much will not be able to purchase a home for the next 5 to 10 years anyways so don't worry about it too much.

3) You could try to do a short sale but why bother. Again, there will be no deficiency when all is said and done so don't worry about it unless some idiot JDB tries to come after you.

re: not being able to buy another home for 5-10 years, I've been told by a few mortgage brokrers that if you file BK you can usually buy another home within 2-3 years after the discharge, and if you get foreclosed on you can buy within 3-4 years after the foreclosure. Anybody know if that's true or not?

[SeaStriper]

2 - 3 years is VERY true... After BK wait 6 months to a 1 year after DISCHARGE date ----> then start DISPUTING Everything....

[WhoCares1000]

My time was a worst case scenario with the assumption that the credit availability remains what it is today during that time. It could be possible to get a home sooner but I do not want someone coming back to me saying that I told them they could do this and they could not.

[jq26]

I bought one 2.5 years post-discharge of Chapter 7 via FHA (middle FICO was 717). I think Metthuss (don't quote me) reported that it now takes 3 years seasoning for most lenders to approve post-bk. Still not so bad...

[Denita]

There are actually two requirements to be met. If you never owned a home when you filed Bk, then you can purchase 2 yrs from discharge thru FHA financing. This requirement changes since it was 2 yrs and then went to 3 yrs and now as of this month, April 2010, is going back to 2 yrs.

If you have a mitigating circumstance, like your BK was as a result of a medical necessity (serious illness for example), you can get an FHA loan after 12 months if you have re-established credit and can demonstrate the BK was not a result of financial mismanagement. The key is to show that the events leading to the BK are not likely to occur again.

IF you have a foreclosure, you have to wait 3 yrs from the actual sale date to the bank. This can be a long time after your BK discharge. Right now the banks are taking an average of 2 yrs or more (in our area) to actually foreclose. So the clock starts running when the property is deeded out of your name into the bank's name, not when you actually get your BK discharge.

If you sell your house in a short sale, then the 3 yr recovery begins from the date the deed transferred out of your name into the new buyer's name.

If you are able to successfully get the bank to accept a deed in lieu of foreclosure, then the date begins when that deed is transferred. You see the pattern here.

This link has a good summary of the underwriting guidelines (I don't know the company, but the guidelines are accurate for now) http://staringfrog.com/jobs/2010/04/general-fha-home-loan-underwriting-guidelines/

[jq26]

Always great information Denita.

[hotrod]

how long if is a va loan

[Denita]

Most of the time the VA guidelines are similar to FHA guidelines - except in a few key areas (100% financing/amount of funding fee etc). But I don't know the impact of a BK or F/C on a new VA mtg. I will see if I can find the info for you - or better yet, maybe one of the mortgage brokers can jump in with the info.

[Methuss]

I was told that if the post-bk foreclosure is not reported on the credit bureau reports, then only the bankruptcy discharge date is used to determine the seasoning period.

The answer seems to be dependent on the underwriter answering the question. Some lenders that got really burned by foreclosures have more strict guidelines than those that didn't get hammered so badly.

But I'll know for sure at the end of this year when I try again.

[Denita]

I'm getting different answers from various lenders too. Some of the differences can be attributable to different markets. For example, here in S Fl it seems that although the underwriting guidelines are X, there is an exception for Fl or S Fl. So the best advice is speak to your loan officer and get their guidelines. BTW, FHA is changing the rules again - as of today April 30, 2010. Look here for more info: http://www.allregs.com/home/default.aspx

[Methuss]

Can you post the changes? That site requires "membership" to view full docs.

[bkbankruptcy]

Once you have discharged your chapter 7 bankruptcy you don't have to worry much about foreclosure. Sometime may be some can try to bother you but if they done that it is the violation of rules.

[rastapoppa]

I live in Solano County, California and my Chapter 7 was discharged on 07/2009 and all our debts including our mortgage were included with that discharge.We have since been trying to work with our lender for a livable loan modification because we are still living in the home, but to no avail, they still will not work with us. We had been paying our mortgage (which was not being reported to the credit bureau) up to about 6 months ago and we just received our first notice of the 90 day foreclosure proceedings. Is it time to just walk from our home or do we have options? Any insight is greatly appreciated!

[jq26]

To rasta- your credit report won't reflect the mortgage payments. You did not reaffirm and you have no personal liability. Therefore, the debt was IIB and will continue to be.

How much arrearage are we talking?

[egc]

Let me share our experiences with our lender.  My BK was discharged on 6/2010 & at that time, I was current on my mortgage & was able to keep the house until my rate went up to 6.5% & my mortgage went up more than $ 200. Though I checked the box to re-affirm the debt, the lender & my BK attorney did not send any re-affirmation agreement & the BK court discharged my debt.  My lawyer knew that my house is underwater & valued around $ 165,000 & my mortgage was $ 222,000 on the 1st & $ 16,000 on my 2nd mortgage HELOC with the same lender.  I put down $ 80,000 to purchase the lot cash and the rest I financed it with the bank.  House valued at $ 337,000 & 2 years after it was built, the housing market crashed & my house went down to $ 165,000.  I asked the lender to help me modify my loan & it took them 14 months to process it & then told me they can't modify my loan since I don't have financial liability on it because it was discharged in BK. On the 15th month, they filed a foreclosure case against me and I was forced to hire a lawyer to defend me.  I thought hiring a lawyer would force the lender to work with me and help me modify my loan.  Unfortunately, it took 2 1/2 years of fighting with them & now, they will auction our house this year.  The lesson here, find out first who owns your loan.  The Bank is sometimes just your servicer but if your loan is owned by an investor, the government cannot force them to modify your loan.  Only that investor can say yes or no.  Do not hire a lawyer, call one of the counselor from hud.gov or go to naca.com to help you negotiate with your lender without paying any legal fees.  Also, be careful with those crooks and scammer because they almost con me but I wasn't stupid enough to take the bait.  You will be swamped with letters soliciting you to call them so that they can call you but do not call them. Majority of them are con artist.  Never disclose your social security no, date of birth, tax return or any confidential info to anyone over the phone.  Do not send any money to any agency except to your lender.  Homeowners should be careful and seek the help of HUD approved counseling agency so that you can protect yourself.  As for me, it was a long battle but at least I was able to recoup my $ 80,000 down payment since I live here rent-free for almost 4 years.  Now, I'm getting ready to move on and help my lender sell my house.  I don't mind doing this for my neighborhood because I don't want to leave the house vacant though I can actually move out without any judgment deficiency against me.  However, doing a short sale after bankruptcy is not a bad thing because you're doing a favor to your lender & to yourself.  At least you can exit graciously and tell your lender thank you in spite losing your house to a new owner.  Do not hold a grudge or destroy your property simply because you're losing your home to your lender.  Instead of getting mad, try to understand them and be thankful. 

 

It is true that after BK discharged, your mortgage lender cannot add any late payments or derogatory remarks on your credit report. Therefore, they should not report any judgment deficiency or foreclosure because that will be against the bankruptcy court.

 

If you did not sign any re-affirmation agreement and your bankruptcy has been discharged, it is too late to re-affirm it; therefore, expect the worst from your lender once you fall behind on your mortgage payment.   I guess I was lucky to live here rent-free for almost 4 years and I thank God for that because at least, I was able to recoup my $ 80,000 down payment on this house.  Sometimes, it is practical to move on with your life and start a new beginnings.  Though I can save my house if I file BK chapter 13, that option is not good for me.  Why? The house is still underwater & market value went up to $ 185,000 - $ 200,000 now.  However, there will be no principal reduction & all my arrears will be spread out to 40 years at the lowest rate. I owe almost $ 305,000 in total & it will be stupid to file another bk since I already rebuild my credit to 689 & plus, I don't have any financial liability so why get myself on the hook again and the worst is to re-affirm $ 305,000 debt payable in 40 years.  I'll be old then and probably not able to pay it off.

 

Hopefully, this long story will be able to help you based on my experiences.  It was a one hell of a battle between me and my lender but one of us has to give way.  God knows I tried everything I can to save my house & I even asked myself if I should sue my lender for discrimination but again, the investor has the right to say yes or no.  Besides, I signed the note & promise to pay the lender; however, I broke that promise and it is fair that the investor has to recoup their loses too.  

 

In Florida, homeowners are more protected than any other States because we are in a Judicial Foreclosure Process which means that it has to go through the court.  Call a HUD approved agency to help you with your foreclosure. Don't wait for your lender to serve you a summons because you only have 20 days to answer it. You must answer that summons or else you will lose your rights to defend yourself in a foreclosure case.  If you cannot afford to pay a lawyer, go to your state's bar association's website and look for pro bono or free lawyers.