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Need advice on FHA loan qualifying.


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: My son in law bought a house in 2005 and obtained a sub- prime loan from a lender called  Option One Mortgage. This lender did no verifications of income or assests and the loan terms changed along with a steep increase in closing costs  2 hours before the closing. This was in my opinion preditory lending at its finest.  The loan passed to Countrywide.and then of course ended up with Bank of America when Countrywide failed. At the time BOA acquired the loan it was already in default because my son in law lost his job  The loan itself appears to be part of a real estate security instrument held in trust by Wells Fargo Bank. I am not entirely sure how all that works .


My son in law tried dealing with BOA to get a loan modification but that is  a long process and back in 2008 it wasn't easy to do when you were unemployed. During the loan modification process a property inspection was scheduled and during this inspection black mold and Chinese drywall were discovered in the house. My son in law , his wife and 18 month old child had to move out of the house for health reasons and did not have the money to remediate the mold and drywall situations.


My son in law placed the house on the market with full disclosure of the mold and drywall issues. BOA was no help at all. The only thing they would do is send out endless applications for loan modifications which they had already denied because of the on going unemployment. My son in law thru his real estate broker received  several bonafide offers on the house from area investors. however BOA never responed to any of them. 


My son in law had to file bankruptcy due to the mounting debt and the bk7 was discharged in November of 2011


After the bk7 was discharged Wells Fargo Bank filed for foreclosure on the property and asked the court to reinstate the "lost or destroyed" note. The court has ruled that Wells Fargo had no standing at the time they filed( they did not have the promissory note or a deed in their possession) and at subsequent hearings when Wells Fargo has attempted to refile the foreclosure they have been unable to produce the original note, Also it appears the paperwork transferring the missing promissory note to Wells Fargo was executed by the note holder after they went out of buisness for this and other reasons  the court has refused to allow the foreclosure.   The loan is no longer with BOA and it is with a new company who sends statements of "information" from time to time.


We are not sure who owns the loan or the house and not sure where my son in law stands. He and his wife would like to purchase a home for their family which now includes 3 children using an FHA loan but what will be the outcome with this other property?  Will they stand a chance of being approved with extenuationing circumstances?


Thank you all for your help.

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 My daughter and son-in-law haven't applied for a FHA loan yet as they are not sure what the outcome of this will be.


The court ruled , in May of 2012 that the foreclosure action was dismissed because Wells Fargo failed to prove ownership and standing. Wells Fargo filed the foreclosure action Nov 2009 hower the assignment of mortgage that they presented to the court was executed Feb. 2010. Bank of America sent a legal representative to testify that BOA was indeed the servicer of the loan however they could not produce the note either. 


The court stated that the letter of default that was sent to my son in law was in fact issued by Countrywide however as everyone knows Countrywide is no longer a legal entity and could not provide testimony. The assignment of mortgage that Wells Fargo presented and recorded was prepared and issued by MERS acting solely as nominee for Decision One Mortgage. Decision One Mortgage also no longer exists and is unable to produce the note.


Bank of America has in effect walked away from the mess by dumping the servicing of the loan on another company who as I said from time to time sends my son-in-law an  "information only" statement of the account.


Where does that leave my son-in-law and is there any hope that he will ever be able to get another mortgage?  I don't think the court will ever issue an order of foreclosure without the original note and I don't think anyone knows where that document is.


Thank you all again for your thoughts and advice in this matter



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Wish it were that easy. But because the house has black mold the drywall and insulation must be fully removed and the wood structure treated, also the carpets and padding need to go. This will cost over $20,000 to complete. Even if we could afford that expense the job that my son in law finaaly found after 3 years of unempoyment is 70 miles from the house. A commute of that distance with gas prices what they are is not financially feasible. 


Thank you for your help and advice

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  • 3 weeks later...

There are two sides to every story.


I could write a book here, deal with these type of issues everyday.  As for the lender changing, in the closing documents the home owner gave premission for the loan to be reassigned.  Years ago as a loan officer/ loan broker - cannot count how many loans I originated in Florida.  At the time Florida laws did not require attorneys to be present at closing, sat on the telephone though countless of closings.  Point at every mortgage closing - three copys of the closing documents are genrated- 1 set went to the home owner , the 2nd set went to the lender, and the 3rd set went to the country courthouse (for recording ownership, and who was repsonsible to pay the mortgage taxes). 


Saying the paperwork was lost, Wells Fargo should be able to produce the loan reassignment document the homerowner signed.  If they can't - they have no juristiction, no chaim to the property. 


Realize where you are in the toe- tum pole.  The banks is on top, the loan is in the middle, the homeower is at the bottom.  In foreclosure any requests from you will fall on deaf ears.


Trying to get a loan modification when you not employed, you will get denied because this is no affordability. 


Reading between the lines - him placing the house on the market, tells me they were attempting to do a short sale. Not making a mortgage payment from 2008, then in bk7 discharged in November of 2011.  I am not a Bankurptcy Attorney - the approval process for a bankrutcy when is there is no income, the results are a chapter 7 bk. 


The FHA two-year minimum after a Chapter 7 to qualify for a new mortgage begins when the bankruptcy is discharged.  Not making his payments for five years, his credit report is mostly likely non-existant.  


Sorry if I'm sounding like I'm beating you up, just reading your story.  You could check out USDA home loans the minimum mid credit score is 640 to qualify for a new mortgage.  Since his credit is no good, don't put him on the loan, instead use his wife and you as a co-signer.  My advise is - instead if trying to buy the house.  He should embark a on a plan to clean up his credit first. 




My $00.0002


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  • 4 weeks later...

He will have a problem getting any new mortgage because of his poor credit.  FHA does not approve loans with poor credit.  Many people think that.  It is not true.  Used to be, but no longer.


All of the legal issues are neither here nor there when it comes to wanting to buy another house.  Mortgage qualification is mostly about credit and income.   In other words, if throughout all of this, your son-in-law kept paying the mortgage and maintained good credit, then he could apply for a new loan AND possibly get approved.


But a bankruptcy and all the prior lates and a foreclosure will haunt him for a while.  A new lender is not going to care about the reasons why he defaulted.  A new lender doesn't care that he was ripped off at the old closing or that the house has mold.  The new lender simply can't get involved in that,  A new lender is not going to get in the middle of that fracas.  That's why we have courts. 


I hope he checked to be certain his homeowner insurance wouldn't cover some of the repairs.  My policy has a $20k max for mold damage and a higher deductibe for mold. 


He may have to rent until the mess is resolved and his credit restored.  An option many people are forced to choose these days.


Best to him.

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  • 5 weeks later...

Thank you all for your replies.  The question I have is: Given the fact that the courts have refused to allow a foreclosure on the property what options are available for my son-in-law in the future for getting an FHA loan.


He filed bankruptcy before the foreclosure was filed and the bk was discharged before the foreclosure was filed. He has since begun credit recovery and his current FICO score is 615. He will continue to work to rebuild his credit over the next year. What can he do that might help him get a loan in the future? The only negs on his report are from the bk.


Thanks again for your help.


ps: the mold rider on the insurance was not enough to cover the work that needs to be done on the house. 

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I'd suggest you discuss with their BK lawyer...but...if the house was IIB, your son-in-law no longer has any interest or obligation to the property.  If anyone is reporting anything other than IIB on his CRs, there are  probably grounds for and FCRA lawsuit.


After 24 months, and with a steady income he should be able to quakify for an FHA loan, although he may need a downpayment.

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Thank you willingtocope. The credit report has the mortgage as IIB along with the other accounts that were discharged. My son in law is working hard to rebuild his credit and I now feel a little better that there is hope that in a year they will be able to qualify for a loan.

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