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This article covers the lawsuit question on a mortgage application and what to do if you’re in a lawsuit during mortgage process. There are no issues if you are a lawsuit plaintiff during the mortgage process. However, borrowers can have issues getting a loan approval if they are defendants in a lawsuit during mortgage process. When applying for a mortgage, borrowers often ask whether they are a party to a lawsuit. Being involved in a lawsuit as the plaintiff or defendant triggers additional questions from the lender. It does not usually prevent you from getting a loan. What happens if you have a Limited Liability Corporation (LLC) and are a lawsuit party during the mortgage process?

Can You Get a Mortgage If Your LLC is Under a Lawsuit During Mortgage Process?

Not all mortgage lenders will approve mortgage loans in a home under a limited liability corporation. This is because limited liability corporations are structured where the members of the limited liability corporation are not personally liable for the debts of the LLC. In most cases, if the home was purchased under the name of an LLC and there is a lawsuit for the limited liability corporation, the individual or member of the LLC is not personally liable.  If the homeowner purchased a home under his name and quit claiming the property in a limited liability corporation, the individual or member of the limited liability corporation will be personally liable, which may affect them getting a mortgage. In the following sections, we will cover qualifying for a home loan while in a lawsuit during the mortgage process.

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Can You Get Mortgage Approval if You Are the Plaintiff?

A plaintiff is the person or persons who are suing for damages. Defendants are people who are getting sued for damages. Borrowers who are the plaintiffs in a lawsuit during mortgage process, do not be concerned.  If you are suing someone else,  the defendant could counter-sue. If you are a plaintiff in a lawsuit during mortgage process, the defendant can countersue. If you get countersued, you could face hefty legal fees if you lose the case. The lender will want to see your court filings and retainer if you are a plaintiff or a defendant of a lawsuit during mortgage process.

Can You Get a Mortgage During a Pending Lawsuit?

If your lawyer is working on contingency, meaning you don’t pay unless you win, there shouldn’t be any problems with getting approved for a mortgage. If borrowers are the plaintiff suing someone, they do not have to mark the YES box on the fourth page of the mortgage loan application or 1003. On the fourth page of the official 1003 mortgage loan application, a question asks whether you are a party to a lawsuit. You can mark a NO on 1003 in the section that asks whether they are a party to a lawsuit. Lenders are concerned when the mortgage borrower is the defendant and the party of the lawsuit during mortgage process.

Can a Defendant in a Lawsuit During Mortgage Process Get a Home Loan?

If mortgage applicants are defendants in a lawsuit, they must mark the YES box on the mortgage loan application where it asks whether they are a party to a lawsuit. Just because someone is a defendant in a lawsuit during the mortgage process does not mean he or she cannot qualify for a mortgage. For instance, you can find yourself in a lawsuit if you cause an auto accident.  Again, you’ll provide the court documents to your lender.

Can a Homebuyer Involved In a Lawsuit Get a Mortgage?

Mortgage underwriters want to see if borrowers were insured during the accident. They want to know that the insurer’s attorneys are representing the borrower. Insured folks who have been involved in an automobile accident and are defendants should not have any worries in their lawsuit during the mortgage process. What if it’s not an auto accident, and you’re defending yourself? In that case, provide a letter from your lawyer explaining the case and the likely outcome.

Can You Get a Mortgage While Getting Sued?

If someone is a defendant sued with no insurance, the lawsuit during the mortgage process can become an issue. Lenders will ask for a letter of explanation from your attorney. Underwriters consider the potential liability of the lawsuit along with your other information when making a decision. There should be no issues if the lawsuit is in small claims court.

Does a Lawsuit Affect Mortgage Loan Applications?

If the plaintiff is asking for a substantial sum because of negligent acts, mortgage underwriters will look hard at the facts of your case. They don’t want to grant a mortgage to a borrower who loses in court and ends up with a massive judgment. Courts can enforce judgments with wage garnishments and asset seizure or place liens on the borrower’s home. These can take precedence over the lender’s lien, leaving the lender nothing if it has to foreclose on you. Wage garnishment can also make it difficult for borrowers to pay their mortgages. 

How Underwriters View Borrowers in a Lawsuit During Mortgage Process

Surprisingly, Fannie Mae and Freddie Mac do not prohibit loans to borrowers involved in lawsuits. Fannie Mae says: “Fannie Mae does not have a policy regarding a borrower who is a party to a lawsuit.  However, a lender should factor this in the loan’s underwriting (and ability to repay) as part of their overall loan decision, especially if the lawsuit has the potential for personal liability.

Do You Disclose You Are in a Lawsuit During Mortgage Process?

Checking the box on the loan application would not make the loan ineligible.” If you have enough money or income to satisfy a judgment without impacting your ability to repay your mortgage, it’s up to you (and a good loan officer) to make your case. And that’s probably good practice for defending yourself in that lawsuit. 

Best Lenders For Borrowers in a Lawsuit During Mortgage Process

Mortgage Borrowers who need to get qualified for a mortgage while in an If you have any questions about getting a home approval while you are a plaintiff or defendant in a lawsuit during mortgage process, please get in touch with us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at alex@gustancho.com.  Gustan Cho Associates is a dba of NEXA Mortgage, LLC, licensed in 48 states, including Washington DC, Puerto Rico, and the U.S. Virgin Islands. Speak With Our Loan Officer for Mortgage Loans

Frequently Asked Questions (FAQs)

1. Can I get a mortgage if I’m involved in a lawsuit?
   Yes, getting a mortgage while involved in a lawsuit is possible, but it may affect the lender’s decision and the loan terms.
2. How does a lawsuit affect my mortgage application?
   A lawsuit can impact your mortgage application by raising concerns for lenders about your financial stability, ability to repay the loan, and potential for legal liabilities.
3. Do I need to disclose ongoing lawsuits when applying for a mortgage?
   Yes, disclosing ongoing lawsuits during the mortgage application process is typically required. Failure to do so could be considered mortgage fraud.
4. Will a lawsuit affect my credit score and creditworthiness?
   Yes, depending on the outcome of the lawsuit and any resulting financial obligations, it could impact your credit score and overall creditworthiness.
5. Can I still qualify for a mortgage with a lawsuit on my credit report?
   Qualifying for a mortgage with a lawsuit on your credit report is possible. Still, lenders may scrutinize your application more closely and offer less favorable terms.
6. Should I wait until the lawsuit is resolved before applying for a mortgage?
   Depending on the circumstances, it may be wise to wait until the lawsuit is resolved before applying for a mortgage to avoid potential complications and uncertainties.
7. Will a pending lawsuit affect the mortgage approval process?
   Yes, a pending lawsuit can impact the mortgage approval process by introducing uncertainty and potential financial risks for the lender.
8. Can I use funds from a lawsuit settlement for a down payment on a mortgage?
   Sometimes, you can use funds from a lawsuit settlement for a down payment on a mortgage. Still, it’s important to disclose the source of funds to the lender and ensure it meets their requirements.
9. How can I mitigate the impact of a lawsuit on my mortgage application?
   You can mitigate the impact of a lawsuit by maintaining strong financial stability, providing thorough documentation, explaining the circumstances to the lender, and working with legal and financial advisors.
10. Should I consult a lawyer before applying for a mortgage if I’m involved in a lawsuit?
    It’s advisable to consult with a lawyer familiar with real estate and litigation matters to understand how your lawsuit may impact your mortgage application and ensure you fulfill all legal obligations and disclosures.

Why Choose Us at Gustan Cho Associates

Gustan Cho Associates has a national reputation for being able to approve mortgage loans other lenders can’t. Over 80% of our borrowers at Gustan Cho Associates could not qualify at other lenders, or the other lender did not have the mortgage loan option best suited for the borrower.

The team at Gustan Cho Associates has a national reputation for its no-lender overlays business platform. We are experts in getting FHA and VA loans with credit scores down to 500 FICO. 

Gustan Cho Associates has a network of over 210 wholesale mortgage lenders, including government and conventional lenders, with no overlays and non-QM mortgage lenders. Gustan Cho Associates is a national mortgage company with no overlays on FHA, VA, USDA, and Conventional loans with dozens of non-QM and alternative mortgage wholesale lenders. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

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