Lawsuit During Mortgage Process Lending Guidelines For Borrowers


Lawsuit During Mortgage Process Lending Guidelines For Borrowers

This BLOG On Lawsuit During Mortgage Process Lending Guidelines For Borrowers Was UPDATED On September 6th, 2018

One of the questions that is often asked when applying for a formal mortgage loan application is whether borrowers are a party of lawsuit:

  • If borrowers mark yes, the Automated Underwriting System will pick this YES answer
  • There are specific guidelines when it comes to a lawsuit during mortgage process
  • Most of the time, it can be worked out where a lawsuit during mortgage approval process will not affect borrowers in getting home loan approval
  • However, it depends on the type of lawsuit it is

What Happens If You Are Suing Someone?

Borrowers suing someone and are the plaintiff in a lawsuit during mortgage process, do not be concerned:

  • However, Lenders will most likely want to see the copy of the lawsuit
  • Lenders will be concerned with legal fees
  • If borrower has retained a law firm that is suing defendant with contingency legal fee agreement, then there is no issues
  • If borrowers are the plaintiff and are suing someone, they do not have to mark the YES box when it 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

What Happens If Someone Is Suing You During Mortgage Process?

If mortgage borrower is the defendant and have a pending lawsuit during mortgage process, they need to mark the YES box on mortgage loan application where it asks whether they are a party to a lawsuit.

  • Just because someone is a defendant in a lawsuit during mortgage process does not mean they cannot qualify for mortgage
  • Many times people get sued when they are involved in an automobile accident
  • If this is the case, lenders want to see the lawsuit paperwork
  • Mortgage underwriters want to see if borrowers were insured at the time of accident and whether the legal team of the insurance carrier is representing them
  • They will most likely require insurance coverage and most often, automobile insurers cover their clients on automobile accidents
  • The insurance company will normally cover attorney fees, medical bills of the plaintiff, as well as other costs associated with the lawsuit
  • Insured folks who have been involved in an automobile accident and are defendants should not have no worries in their lawsuit during mortgage process

Can Defendant In Lawsuit Qualify For Mortgage

If someone is a defendant is being sued with no insurance, the lawsuit during mortgage process can become an issue:

  • If the dollar amount being sued for is nominal, then there should be no issues
  • However, if someone is being sued for a substantial sum for negligent acts, mortgage underwriters will view it on case by case basis
  • It may or may not affect the mortgage process and approval
  • The reason why mortgage lenders are concerned with uninsured lawsuits is because they are concerned that borrowers could eventually get a judgment against them if they lose the lawsuit
  • Judgments are probably the worst derogatory item any consumer can have on credit report
  • Judgments can be enforced and wage garnishments and asset garnishments can be issued
  • A judgment creditor can also enforce their judgments by placing liens on one’s properties and assets
  • Lenders are also concerned with lawsuits because once a person being sued gets a judgment, the judgment debtor can file bankruptcy in order to be relieved from the judgments
  • Bankruptcies are often filed by those who have judgments
  • Bankruptcies is the easiest way of getting rid of an outstanding judgment

Mortgage Borrowers who need to get qualified for mortgage with a direct lender with no overlays on government and conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. The Gustan Cho Team at Loan Cabin Inc. are direct lenders with no overlays on FHA, VA, USDA, and Conventional Loans.

Gustan Cho


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